Report: Instant payments, the beginning of the transformation

Since instant payments could be the catalyst needed to implement the use of mobile payments, we analyze key market aspects

In today’s digital society, with real-time access to information about when the next bus will arrive or the temperature, humidity, and wind at our weekend destination, it is unfortunate that we are unable to know the exact balance of our bank account.

This is because some of the transactions that affect our balance do not take place immediately. Instead, the corresponding transactions are stored for a period of time and executed at certain hours or even the next day. This batch work method makes it possible to reduce computer system costs and establish control mechanisms for approving transactions and minimizing fraud. In addition, registering charges before the corresponding payments indirectly improves cash flow. The reality is that most banks use systems that do not operate in real time for many common transactions, such as retail payments, including transfers, direct debits, and credit/debit card payments.

In light of this situation, within the existing framework of free global competition for Internet and mobile services, it is easy to anticipate what could happen in the near future if digital leaders, protected by liberal regulations, accept the opportunity and are interested in entering the financial services market.

The array of existing initiatives for providing systems and infrastructures that allow instant payments, as well as the commitments of some banks in establishing real-time transactional platforms, make it possible to predict the development of a competitive environment that is more balanced between traditional financial entities and new digital service providers. This trend will be particularly beneficial for consumers and merchants as well as for the providers of these services and society in general due to lower costs and the chance to develop new businesses and innovative services.

Instant retail payments have the potential of reducing the use of cash and checks, especially in the case of peer to peer (P2P) and peer to business (P2B) payments, thereby making key contributions towards the development of electronic commerce and mobile payments.
In this report we will focus on describing the status of the European market—stimulated by the recommendations of the European Council for Retail Payments—in terms of the 2017 implementation of an instant payment system in the Single Euro Payments Area (SEPA) that will guarantee interoperability based on the existing mechanisms of the new Sepa Credit Transfer (SCT) model.

The European instant payments system will be available to all payment service providers and it will make it possible to initially support instant credit transfers (SCTi) as an alternative to international card networks. This will guarantee an increasingly competitive market and streamline the development of new digital and mobile services.

The banks in this framework will play a special role and have the chance to regain leadership of retail payments—which are currently controlled by large international networks—if they are able to leverage their management of bank accounts and online banking services to offer digital customers an excellent experience in a collaborative environment that guarantees interoperability.

Manuel Borrajo
manuel.borrajo@nae.es

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Download (in Spanish): Instant payments, the beginning of the transformation (Nae, 2016) [PDF, 382 KB]