Just six years ago, only 14 countries had this capability. Today, 56 nations have enabled real-time payments — still less than one-third of the world’s nations.
This article takes a bird’s eye view of the global real-time payments ecosystem and explores its future.
Types of instant payment mechanisms
Primarily, there are three kinds of instant payment mechanisms that differ from one another in small but significant ways:
- Instant bank transfers that use account numbers (the traditional approach)
- Real time payment (RTP) transfers from one bank account to another using an alias like a mobile number or a unique id
Here are the key characteristics summarized below:
The global real-time payments landscapeThis article will analyze RTPs that have revolutionized the payments space with wide acceptance from customers. Below is a brief snapshot of RTP features from key countries:
Instant payment infrastructure is currently live in 56 countries including Singapore, India, Poland, US, etc. Over the next few years, 5 more countries - Canada, Peru, Indonesia, New Zealand, Colombia are expected to offer instant paymentsIt might be surprising to some that we’ve omitted China from the table above, in spite of the country being a known frontrunner when it comes to the payments revolution.
Here’s why – the Chinese payments ecosystem is dominated by e-wallets like WePay and AliPay. According to Daxue Consulting’s payments report, of all the payments made in China, in 2018, a whopping 83% used mobile e-wallets.
And, even though China has its own RTP system - IBPS (Internet Banking Payment System), it’s more often than not used to fund e-wallet accounts, that are then used to make the actual payment. Therefore, considering the wide acceptance of e-wallets in China, it will be hard to move people to an RTP system.
Trends driving real-time paymentsBased on our experience of working with some of the world’s most progressive payment ecosystems, we see a few distinct trends emerging:
- Open API-enabled real-time payments system is gaining popularity. 86% of banks surveyed by Finastra want to use open APIs to enable open banking in the next 12 months.
- Technology players are leveraging existing capabilities for product innovation. Big Techs like Google and Apple are leveraging the existing infrastructure and customer base to offer innovative financial products.
- Fintechs like PayTM are offering mutual fund investments leveraging underlying infrastructure. Whatsapp is also venturing into the payments space.
- Instant payments are fuelling tech innovation and vice versa. Banks and financial institutions are seeing the business value of moving from monolithic / legacy IT infrastructure to service oriented architecture. They are using the big data they generate to build customer insights and offer personalized experiences. Many are also experimenting with blockchain-based solutions and cryptocurrency.
- Real-time payments are enabling micro-economies. RTP has spawned an ecosystem that encourages third party firms to offer innovative products to customers. It is also helping corporate treasuries with better working capital and liquidity management.
- COVID-19 has accelerated the adoption of no touch instant payments. Real time payment solutions are delivering value especially in industries that have high customer touch points such as retail, restaurants, movie business, etc. Even as the excitement around RTPs is at an all-time high, countries aspiring to build or strengthen their payment system need to proceed cautiously. Enabling such a nationwide system at scale brings with it unique and complex challenges.
Challenges in building a robust RTP solution
- Unchanging user behavior. Often, customers entrenched in specific financial habits might not like change. Merchants and traders used to traditional payment methods might be reluctant to invest in setting up new processes.
- Building a robust infrastructure. Countries often struggle to set up the advanced infrastructure needed for a centralized RTP system, alongside a scalable banking infrastructure and nationwide connectivity.
- Enabling interoperability. Mobile wallets have had issues of interoperability. Central banks have eliminated this challenge for real-time payments. However, the same can’t be said of offline payments.
- Adapting to evolving regulations. Regulatory action around information security, privacy, uptime, performance etc. need to evolve at the rate at which real-time payments are evolving.
- Ensuring security. Preventing fraud, securing payment gateways and terminals against phishing attacks, social engineering, malwares etc. need to be ensured.
Building the future of real-time payments: an outlookSuccess of real-time payments will depend on how quickly and efficiently a global standardization of the ecosystem is brought about. It will also depend on the kind and variety of RTP-related benefits that customers can access.
We envision the main areas of growth as below:
- Investing in better infrastructure. RTP’s small ticket size and large volumes will put pressure on both banks’ existing infrastructure and their ability to process transactions. Banks will need to upgrade their infrastructure to support these transactions.
- Integrating while there is still time. While some consumers may prefer to use cash, banks should begin to integrate with RTP systems as quickly as possible to avoid losing out to fintechs and niche merchants.
- Modernizing effectively. Banks and financial institutions must modernize their platforms to enable easy API integration, the development of intuitive payment apps and more.
- Solving problems of connectivity. Regulators will push for offline payments solutions to increase adoption in rural or remote areas that have connectivity constraints.
- Focussing on the customer. There is plenty of opportunity to make customer experience more seamless and intuitive – end-to-end digitization of the customer journey, easy onboarding, transaction security, integration and acceptability across various customer touchpoints.
Thoughtworks partnered with National Payments Corporation of India (NPCI), a not-for-profit company that operates retail payments and settlement systems. The objective was to rewrite and modernize one of India’s largest payment apps, BHIM.
BHIM was built atop the nation’s flagship Unified Payments Infrastructure (UPI) that ensures fast, secure and reliable cashless money transfers through mobile phones.
The partnership between Thoughtworks and NPCI resulted in ramped up volumes – 14.4M transactions per month, as of June 2020, and significant user penetration with about 50M+ BHIM app downloads. This was achieved by reimagining customer journeys, redesigning more than 200 screens, and building a custom software offering innovative product features.
In conclusion more consumers are, in fact, choosing instant, effortless and mobile payments solutions, where available. Delivering one at the national scale needs a keen focus on building the required robust infrastructure, and enabling a seamless experience without compromising on security or privacy.
In order to make the much sought after benefits accessible, connecting real time payments with banks should be complemented by offline or wallet payments, and supported by protocols mitigating interoperability challenges.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.