Instant payments, also called real-time payments, are a form of electronic payment that is available 24/7/365, with the payment processed and funds made available to the recipient instantly. However, there is not a singularly accepted definition of instant payments, with differing definitions of how quickly a payment must be processed to qualify as instant.
Instant payments are often confused with faster payments, which are electronic payments that, providing both the sender and the recipient are on the faster payments scheme, can process a payment almost immediately, but can take up to two hours. This means that instant payments are a form of faster payment, but not all faster payments are instant payments.
A new study from Juniper Research has found that the number of instant payment transactions will exceed 376 billion globally by 2027; increasing from 97 billion in 2022, a 289% growth.
It predicts that an increased roll-out of instant cross-border payment schemes in multiple countries will drive this growth by enabling businesses and consumers to benefit from greater speed and efficiency.
How Instant Payments Work
Instant payments send payments along instant payment rails. These payment rails are a platform or network infrastructure that facilitates digital money transfers. Different payment rails operate in different ways. In the following section, some of the more popular instant payment rails will be examined.
This efficiency is gained by processing payments over instant payment rails, which provide time and cost savings, while also offering greater transparency over transactions to stakeholders than traditional payment rails.
Instant payment is any payment outside of a card network that is capable of receiving funds in 10 seconds or under.
Benefits of Instant Payments
Benefits for Consumers
Instant payments offer sub-10-second payments for consumers that can be integrated into end-user applications. This puts instant payments in a strong position to fulfill the role of cash, in an increasingly cashless society. Instant payments have several benefits over cash, both from the consumer perspective and from a wider perspective. The primary advantage for the consumer is that there is no need to carry the money on their person. This is convenient, as there is no need to regularly withdraw money from an ATM and no risk of not having enough money for a purchase with them at checkout.
Most instant payment providers use a data rich model to facilitate instant payments, and this can be used to increase transparency. This data can be provided with the app used to make the payment and allow for a greater understanding of their payments, by the user. This can also be used to inform both the payor and payee of the settlement of the transfer. For example, when a R2P payment is requested, a request message is made from the payee to the payor, including a range of details about the payment. This allows the payor to have better understanding of the payment before making it.
Improved Money management
The primary benefit to the user of instant payments is the speed of the payment. This allows them to pay bills without accruing late fees or risk defaulting on a payment. These can negatively affect a credit score, which can cost the consumer further down the line, through higher interest rates on loans or the denial of credit. Denial of conventional credit can lead to the use of more expensive alternatives. It
can also allow for the prompt repayment of loans which can enable users to repay them while accruing less interest. Another common use for instant payments is splitting payments in social situations. This allows for the payment of bills between a group of people without the need for informal debts. Some instant payment providers also offer budget management capabilities as an overlay service. This allows users to take more direct control over personal budgeting and makes it easier to compile spending data against their budget.
Benefits for Business
Improved Financial Control
Instant payments allow for greater control over cashflows. This is because businesses are not waiting for payments to be settled, meaning that a business purchasing a service is not waiting on a payment to be settled to access that service. With the combination of instant payments and cloud-native services, a new service can be online the same day whereas, before, this could take several days if not
longer. This also allows suppliers to begin the process of shipping products. This predictability of payment settlement allows for greater implementation of cashflow strategies and accurate forecasts. The simplification of payment processes, as well as the ability to make cross-border payments instantly, will increase the efficiency of a business and open them up to new B2B opportunities. This will be especially
impactful for SME (Small and Medium Enterprises).
Many instant payment systems offer greater transparency for its users. This is achieved through the reduction of friction prior to and after reconciliation and the adoption of ISO 20022 messaging standards. These standards require that financial messages that support rich data about transactions are kept. This data can be made available to users, with many providers offering data-based value-added features to
their instant payment offering. This can take the form of data presentation, data manipulation or support for more complex data analysis. The availability of payment data can provide insights, as well as allowing for businesses to make better-informed decisions.
Automation is a growing part of the payment landscape, and instant payments are well set up to benefit from the incorporation of automated processes. The quantity and standardisation of data provided by ISO 20022 will allow for greater automation. The standardisation is vital in this process, as it allows software designers to create automated processes that use this standardised data. Without standardised data, a
different automation process would be needed for each instant payment system, as they could not read the other systems’ data. This automation process, using AI and machine learning, offers particular advantages in the AML and KYC sectors.
Regulators to Play Key Role in Cross-border Instant Payments
The report forecasts that cross-border transactions will grow at a faster rate than domestic transactions globally. It anticipates that cross-border transactions will rise from 631 million payments globally in 2022 to over 6 billion in 2027. The creation of instant payment schemes by international bodies, such as the EU, and an increase of bilateral agreements between these bodies will be key drivers of growth over the next five years.
These bodies will be essential in creating cross-border instant payment networks, as they have the capital and influence to connect disparate payment schemes across different geographical regions in order to maximise the value proposition of instant payments. In turn, the report recommends that regulators increase partnerships with international bodies to broaden payment schemes and expand access to instant payment services.
Greater Efficiency to Drive Business Adoption
Additionally, the report predicts that the increased time and cost efficiencies, and the improved cashflow management of using instant payments will be primary factors in influencing businesses to adopt. This will contribute to the total value of instant payment transactions rising from $6 trillion this year, to $33 trillion in 2027.
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