instant payments are coming

Changes on the Payment Horizon

Payments are no longer limited to regular business hours, creating new challenges for funds transfers. In addition, merchants require faster and more reliable money transfer systems to keep up with consumer demand. Thus, the notion of real-time payments became extremely attractive, leaving cash a thing of the past. 

With Instant payments now concurrent with the PSD2 implementation, they are at the heart of the new transforming payments landscape. Experts predict that within a few years all payments will be either instant or initiated in larger volumes and processed instantly.

In this system, the consumer will be in control through overlay service and transaction volumes will be 10-fold and plus greater than they are today.

DEFINING “REAL-TIME” WITHIN PAYMENT SYSTEMS

Even though there is no unique definition, the Euro Retail Payments Board has defined instant payments as: “an electronic retail payment solution available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the consumer (within seconds of payment initiation).” 

With digital wallet-based payment systems, users do receive immediate notification of the transaction, but funds are transferred later on.

The settlement time depends on the payment method chosen by the consumer.

The difference between card payments and instant payments is that it requires only the clearing house and bypasses the payment schemes. 

Some of the significant use cases for instant payments could be for same-day wages, business-to-business payments, expedited bill payments, and account-to-account transfers.

The key drivers

There are several major reasons why the industry is becoming more interested in instant payments and two of them are consumer demand and merchant demand

Living in an instant and mobile world, consumers have higher expectations than ever before.

Consumers want the same speed of money transfer as with cash and suppliers want certainty around payments.

On the other side, merchants want certainty when delivering goods or services. They also strive for a more free flow of money, without waiting for payments to clear before delivering them. 

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Benefits for everyone

This innovation in payment may appear challenging regarding its realization for financial institutions. On the other hand, it proved to be very attractive, especially for consumers, but also for banks. 

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Instant payments can actually reduce costs for banks by decreasing the amount of costs for maintaining payments statuses as well as other operating and maintaining activities. Real-time gross settlement (where each transaction is settled individually in real time) has the least risk, but requires high liquidity costs for banks. This can also be a big driver of transaction increase as they become more swift and non-reversible. 

Together with increasing value for consumers and offering attractive instant payment services, this new trend demands greater security and more robust fraud prevention.

Instant payments are a great incentive to finally optimize financial infrastructure. As a result, it will enhance security which will also improve accuracy, reduce fraud, and serve consumers and banks better. Regulatory authorities have also been waiting to experience the modernization of the payment infrastructure, so they are increasingly embracing the idea of instant payments.