The world seems to have got itself into a great big, tearing hurry. Consumers can send and receive e-mail across the globe in near-real-time. They can download a movie to watch immediately, or buy groceries online for delivery within one-hour slots. The payments industry is also engaged in its own race against time, which is driving interest in instant, immediate or real-time payments.
Users expect payments to keep pace with the speed of service in other areas of their lives. Waiting five-six days for a cheque to clear, or three days for a bank transfer to reach the beneficiary’s account seems like banking from a bygone era.
“Users want to make and receive payments faster. Policy makers and regulators want payments to be more efficient, cost-effective and interoperable to power economic growth, innovation and greater competition,” explains Laurent Hupet, Payments & Cards Product Manager at Sopra Banking Software.
Then there is technology. The switch to smartphones is well underway. Around two-thirds of all mobile connections will be smartphones by 2020, up from half only two years ago, according to the GSMA. Along with access to high-speed broadband, smartphones are a pre-requisite for certain types of mobile-initiated push and pull payments.
Enterprise technology is also changing apace. The first instant payment system — Zengin in Japan — dates from 1973. Forty years on, improved enterprise technology means faster payments with richer data. Banks have realised that they must invest in their core systems and capabilities to compete. Frequently this means investing in instant payments running on ISO 20022. This enhanced standard passes enhanced data, such as remittance information, purchase order and invoice numbers.
The future of payments will be more about the data that travels with payment, than the payment message itself. This in turn will spawn many new data-driven use cases and business models. Consequently, many countries with live instant payments systems are actively looking to upgrade to the ISO 20022 standard, including China, South Africa and Switzerland. Meanwhile, Australia, the Eurozone countries and the US are building instant payments systems on ISO 20022 from the outset.
However with these upgrades and implementations, banks face a double race against time, as Sopra Banking Software explains:
“Banks must be able to process payments and make funds available to beneficiaries instantly 24x7x365 on the front end. At the same time, they must ensure their IT systems and downstream processes are ready at the back end. These include fraud scoring, interbank exchange and settlement protocols.”
The European Central Bank is expecting “at least one instant payment solution in euro” to be available “to all payment service providers in Europe” towards the end of 2017, according to the ECB website. There is not a lot of time between then and now. The future is happening in an instant. Hence the race against time to be ready.