Instant Payments Go Mainstream

Instant payments provide consumers and businesses with a fast, efficient and cost-effective way to make payments. The technology also has the added benefit that it opens up opportunities for cutting-edge overlay services, according to Sopra Banking’s Dr David Andrieux.

David Andrieux

Today’s connected consumers expect instantaneous access to information and services on the move and expect the same service when it comes to banking and payments.

Instant payments provide consumers with instant flexibility and convenience when it comes to their cash flow, making immediate transfer of funds possible 24/7.

Instant payments are also a boon to the wider economy. Because payments are exchanged in real-time it optimises working capital management and dramatically cuts down on external financing. For governments, instant payments also increase efficiency and integrate, tax, social insurance and other government-related payments.

But to make this real-time banking ecosystem work, banks are expected to ditch legacy systems and invest in innovative, mobile-focused, secure-instant payment technology from the offset.

But do these ‘soft benefits’ such as enhanced customer satisfaction, expanded financial liquidity and reduced risks really demand a large investment in an instant payment infrastructure? To answer this, banks need to look at the bigger picture when it comes to digital transformation. This is about a competitive future roadmap and not just today’s bottom line.

There is no getting away from it – instant payments are here to stay and banks will need to provide an attractive offering to compete with Third Party providers as well as non-bank Payment Service Providers. Let us not forget the enormous opportunity the instant payment ecosystem also offers in selling in innovative value added services.

Mobile payment services come of age

Mobile payments are providing a host of opportunities for service providers, retailers and technology companies to piggy-back with new services to win over customers. These new players come as no surprise as it is about winning over the customer relationship and scooping up their personal data, via which they can sell in additional add-ons.

Alongside this, banks and non-bank payment service providers are developing end-user services such as optimisation of loyalty schemes, budgeting and receipt management. Dubbed ‘overlay services’ they envelop the entire purchasing experience and reach far further than the simple payment itself. These include in-store promotions that are dynamically linked to a customer’s previous purchasing history, for example.

It is key to mention here that the payment infrastructure is still often left lagging behind the mobile world and there is definitely improvement required in some cases. It is not uncommon, for example, for a consumer to have their purchase delivered faster than the payment transaction!

Real-time comes with challenges

Real-time payments are core to the digital economy. But building the ecosystem does not come without its challenges. The biggest is centred on the very foundation of real-time payments, the technology itself. Investment is required in replacing batch-based legacy systems, which can’t handle real-time workflow, with innovative technology.

To support many of the news services being pitched, instant payment systems have to be fully integrated with other systems and services, such as cash management, for example. Banks’ internal processes need to be powerful and highly transparent, or it will be impossible for them to balance funds, leading to undesirable fluctuations in liquidity.

Going 24/7 also puts pressure on resources and processes to support a secure service. The speed of real-time payment systems make it far more difficult to detect fraudulent behavior, for example. This means further investment by banks in high-end fraud detection solutions and payment interdiction processes.

Finally, we must not forget that instant payment transactions are irrevocable. This means that banks also need to incorporate stronger customer authentication and encryption processes for online and mobile banking as part of their overall security strategies.

The future for instant payments is positive

With the European Payments Council now pushing for a pan-European instant payment scheme, which would bring real-time money transfers across the Single European Payments Area (Sepa) by November 2017, instant payment is definitely here to stay and set to flourish.

This will put the customer relationship at the very epicenter of banking. This is very important as the Payment Service Directive 2 is looking to open up payment to new players to increase competition and choice for consumers and businesses, including laying the foundations for such payment methods as mobile person-to-person payments. Instant payments will also be pivotal to harnessing the payment process and going head to head with non-traditional rivals.

On the back of this we will rapidly see new overlay services appear, which will in turn speed up the development of instant payment solutions. And so a self-perpetuating circle will be created.

With PSD2 on the horizon and a move to instant payments, banks need to look at innovation in the payment space, understand changing consumer behaviour and plan their strategies accordingly, or get left behind by hungry new players.

Find out more on the challenges and opportunities of instant payments by downloading a special Sopra whitepaper, co-authored by Dr David Andrieux, Sopra’s Market Intelligence Manager and Bernard Rame, Sopra’s Head of Payments, ‘Driving new overlay services with instant payments’ here