By Paul Thomalla, Global Head of Corporate Relations, ACI Worldwide
A recent Payments UK report forecasts an all-time record of 44 billion payments annually in the UK by 2024, a projected growth of 3.4 billion over the next 10 years. This will equate 120 million payments per day, an increase which will be driven mainly by rises in card, internet and mobile banking payments, the report states.
The report also suggests that the most significant part of that increase in the next decade is expected to come from debit cards. This will largely be at the expense of cash as more consumers use debit cards to make contactless payments. According to the research, it is expected that in 2016 the total volume of all non-cash payments made by consumers will exceed the volume of consumer cash payments for the first time.
The report also reveals the success and the growth of faster or real-time payments in the UK, with the overall number of one-off payments processed as Faster Payments set to double by 2024.
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These figures certainly make interesting reading. For me they underline two important developments: Firstly, consumers are responding like never before to the ease and speed offered by new payment options as the expected rise in the total volume of non-cash payments clearly shows. Contactless for example, gives consumers the ability to ‘tap-and-go’ with the flick of a wrist. When it comes to mobile payments, we have barely scraped the surface. Mobile payments offer consumers more freedom than ever before, keeping pace with the ever-growing demand for ease and usability. The need to carry an array of different payment methods may in time prove futile, you wouldn’t fill your wallet with cards and cash when you can do it all from your mobile.
The second important conclusion we can draw from the data is that real-time payments are a commercial reality today. Consumers expect to be able to shop and make payments in real-time, and retailers and technology vendors are responding with new solutions and services. Banks and other payment providers need to underpin real-time commerce with the ability to make secure, real-time payments anywhere in the world.
Worldwide, there is now an unstoppable drive towards any-to-any payments, which will enable consumers, merchants, banks and other organisations to connect directly with one another using any payment type, any channel, any network and any currency.
Real-time or faster payments as well as global interoperability of such systems were also the big buzzwords at SIBOS just a few weeks ago. However, compared to previous years the debate has moved on. The question today for many countries and institutions is not any longer whether to do faster payments but how to do it, and what the risks and challenges are. With discussions about global interoperability and harmonisation of messaging standards far from over, my predictions is that for now more and more countries will go ahead with plans for their own real-time payments systems at their own speed.
The experiences in the US, UK, Asia Pacific and India clearly demonstrate that there is significant customer demand for real-time payments systems. Many banks across the world realise that they can attract and retain customers if they offer faster payments services. In the long run faster payments will reduce costs for banks, by abolishing their payments silos. Banks face excessive costs just to maintain the status quo in payments, operating and maintaining multiple silos for ACH, RTGS and cards payments. Over time there will be potential to remove some silos, such as those for cheques and ACH, and replace them with faster payments schemes. For banks faster payments represents a huge opportunity to move away from aging legacy payments systems and towards a more modern infrastructure.
As the use of the ISO 20022 framework proliferates there is also a greater possibility that faster payments schemes across the globe will become more standardised. It is likely ISO 20022 will help to establish inter-country scheme linkages so that a customer in the UK for example, could make an instant payment to a family member in Australia. Countries will be able to improve their domestic payments systems while at the same time building compatibility with systems overseas. Within the next five years global, real-time cross-border transfers could become a reality.
The winners of the new ‘faster payments world’ will be those who act now. Countries like Holland, Denmark and Sweden are moving fast and are currently following in the footsteps of those with more established real-time payments systems. In the US, the US Reserve Banks and the Federal Reserve Board are developing faster payments in collaboration with banks, merchants, corporates and consumers. The Fed has also set up a Faster Payments Task Force, which will identify and evaluate approaches to faster payments, engaging with a diverse range of stakeholders. And in the European Union the EBA’s Instant Payment Task Force is working on a pan-European solution for instant payment processing and has developed a roadmap for delivery of instant payment services by EBA Clearing by 2018.
The winners in the evolving consumer payments market will be those who understand that long- term success will depend on two things. Firstly, innovative products must be easy to use and easy to understand, otherwise consumers will continue to do what they have always done.
Secondly, new approaches require bullet-proof payments operation and IT systems. In today’s brave new payments world there will be little room for error. Speed and reliability will decide who wins.