New research from Emerging Payments Association reveals that realtime payments are growing rapidly in the UK and deploying widely worldwide, signifying potential for business payments for banks and FinTechs.
The Impact of Realtime on Payments and Data, details how consumer expectations have drastically changed over a short period of time – and consumers no longer accept delays to funds movement or clearance.
The spike in demand for realtime payments was sparked by the implementation of PSD2 and Open Banking in 2018. Intended to be a catalyst for innovation in the financial industry, the regulation has massively impacted consumer behaviour and attitude towards slower payment processes.
Realtime payment systems are now operational in 53 countries around the world and implementation plans or discussions are underway in a further 16 countries. The scope of realtime varies across these countries with some having national systems, others just settlement, some hybrids and another group only offering Person-to-Person (P2P) services.
The first national realtime payments system, called Zengin, was launched in Japan in 1973 and so realtime discussions have been around for a long time. The UK is an early global adopter of realtime with the Faster Payments scheme launching on the 27th May 2008. Regional realtime payment programmes are a new area of focus including the European SCT Inst and the P27 Nordics programme.
Realtime needs to be applied at multiple levels within the payments ecosystem in order to achieve the full benefits. A national realtime payments network sits at the heart, banks then need to have their own internal systems that can connect to this and also operate in realtime.
Governments also need to operate modern Realtime Gross Settlement (RTGS) systems that can settle transactions individually throughout a day. The UK recognises the importance of realtime and plans are in place to upgrade the UK’s Faster Payments Scheme (FPS) to a New Payments Architecture (NPA) and also from the Bank of England for a modern RTGS.
PSD2 and Open Banking are further catalysts to the growth in realtime payments. These regulations aim to stimulate innovation and competition and have been designed to operate in realtime.
The international card networks understand the new market dynamics and are busy investing heavily in realtime payment companies and assets (like Vocalink, NETS and Bankable) as well as creating new products such as Visa Direct and Mastercard Send to allow the faster movement of funds.
Traditional card based payments use realtime for authorisation, although the funds are not settled immediately. So the card networks already have extensive realtime experience. Transactional data offers great potential for businesses, but today this is largely being under utilised.
Big data can be aggregated to create anonymity or with appropriate permissions used to create personalised offers. New advanced analytical tools are able to deliver improved insight into customer behaviour and preferences. Fraud prevention and risk management solutions need to operate in realtime in order to stop criminal activity and keep payments safe.
The most significant market trend is the continual shift away from cash and cheques to digital payment methods. These utilise advanced communication and processing networks allowing payments to be completed far quicker.
The 2019 World Payments Report states that non-cash payments grew by 12% globally last year, with developing regions growing faster and Asia recording 32% growth. The prediction is that there will be 1,046 billion non-cash transactions globally by 2022 up from the latest reported figure of 538 billion, a phenomenal 94% increase.
Realtime payments are a significant contributor to non-cash payment statistics and are also showing rapid growth. The UK’s Faster Payments Scheme (FPS) processed over 2 billion transactions last year a 23% increase over the previous year. In August 2019 FPS processed 201.8 million (+17%) realtime payments worth £160 billion (+11%).
EU Adoption of SCT Inst
The new voluntary European SCT Inst realtime scheme is also making good progress as more Payment Service Providers (PSPs) join and users learn about the option for instant payments. 2078 PSPs have confirmed their participation in the SCT Inst programme, representing just over 50% of the number sending traditional Sepa Credit Transfers (SCT). Transaction volumes have increased by 177% in the last quarter. The recent decision by the European Payments Council to increase the maximum transaction amount from €15,000 to €100,000 from the 1st July 2020 will further accelerate adoption and volumes.
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