Instant payments are now mainstream. The last decade saw a ramp-up in adoption as regulation, customer expectation and technology dovetailed to create immediate, 24/7 demand for financial services.
This means that banks and payment service providers (PSPs) who rely solely on speed of payments as a competitive differentiator will struggle to get ahead. The focus is now on leveraging instant payments rails to deliver value-added services that can drive a return on investment. Understanding where these opportunities lie, therefore, is crucial.
Perhaps the most valuable new way to leverage instant payment rails is Request to Pay (R2P). R2P is an umbrella term for various scenarios in which a payee takes the initiative to request a specific payment from the payer.
Corporates have two key challenges in that they only receive funds when a customer wants to pay them, and they only receive the information the customer chooses to provide. This makes reconciliation difficult and can even negatively impact workflow and working capital.
However, the R2P options for bill presentment and payments solve these problems, significantly reducing operational cost, liability for chargebacks and fraud risk, as well as improving reconciliation and liquidity. A secure R2P service also has the potential to simplify managing receivables and reduce processing costs.
R2P also benefits consumers. As they are presented with a payment request rather than funds being debited automatically, they can enjoy more autonomy and control over their money across various channels.
As a result, several solutions have emerged under the R2P banner, such as the IDEAL scheme in The Netherlands and PromptPay in Thailand. Further traction will be gained, with EBA Clearing gearing up to launch a pan-European R2P solution in 2020. Certain banks in the US have also begun to go live with The Clearing House ISO 20022 R2P messages using instant payments infrastructure.
QR code solutions have surged in popularity in recent years as a simple, low-cost alternative payment method, offering consumers and merchants more choice at checkout.
We are now seeing various banks and payments industry players reviewing their strategies to take full advantage. QR code-based solutions, combined with instant payments rails, can extend utility beyond the physical point-of-sale to include online and bill payments.
Thailand, India, China, Singapore, Malaysia and Hong Kong have all established payment services that leverage QR codes to initiate real-time payments. And although Europe and the U.S. have been slower to adopt QR codes, some European countries such as Sweden and Switzerland have already embraced the technology with country-wide schemes for both retail and corporate payments. In the U.S., adoption is market-led with several retailers such as Target and Walmart implementing proprietary QR code payment systems.
While instant payments does not inherently provide enhanced data opportunities, most of today’s instant payments systems are built using the ISO 20022 data standard. This is due to the extended data-carrying capabilities and the added value this messaging standard can offer banks' customers. For data to be truly valuable, it needs to be machine-readable, consistently structured and standardised – ISO 20022 enables all that.
However merely collecting data is not enough. Mining and extracting value from this data will be a decisive differentiating factor for banks and other players looking to take their customer propositions to the next level.
The good news is that banks and PSPs are well-positioned to collate and leverage data to deliver tailored interactions, unlocking new revenue opportunities while remaining compliant to stringent regulation.
