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Real-Time Enables the Next Frontier of Payments

by internationalbanker

By Craig Ramsey, Head of Real-Time Payments, Banking, ACI Worldwide





The COVID-19 pandemic has driven a step-change across the European payments industry. We’ve seen an acceleration of cashless payments across markets where cash has historically been dominant. And an exponential increase in e-commerce activity as consumers were forced to stay at home during national lockdowns and experienced the ease and flexibility of online shopping on a regular basis.

Consumer adoption of digital services across industries jumped from 81% to 94% in just a few months, a rise which would have taken two to three years at pre-pandemic growth rates. So pervasive is the move towards cashless payment methods, that the EU has unveiled a digital wallet framework that will allow citizens to securely access private and public services and make payments with a single online ID across the 27-strong bloc.

It’s easy to predict the continued growth of real-time payments in Europe. But this is merely the foundation for the next frontier – where real-time payment infrastructure will be leveraged by banks and intermediaries to capture the significant amount of added value the market is craving.

Real-time opportunities   

Undeniably, real-time transactions are growing exponentially around the world. Our Prime Time for Real Time report revealed that in Europe alone there were 7.9 billion real-time payments made, accounting for a staggering $8,317 billion. And our forecasts predict this will only increase. By 2025, we could see the volume of real-time payments rise to 23 billion, a compound annual growth rate (CAGR) of 24.9%.

But the disruption caused by the pandemic has left local economies in a precarious position. Banks and intermediaries across the payments ecosystem have responded by galvanizing their activity – accelerating and reprioritising their shift to digital offerings to protect revenue streams, search for new ones, and provide customers with services and experiences fit for a post-COVID digital-first world. It’s not an understatement to say that those who don’t seize this opportunity risk falling behind the competition who are evolving with the times and establishing themselves as pioneers in payments.

While payments and account services have been central features of traditional banking offerings, accounting for a third of European banks’ total revenues; the maturing real-time payments adoption across Europe presents a major opportunity to leverage the real-time infrastructure to accelerate and innovate around digitised customer experiences.

Learning from India

For all payment players in Europe and around the globe, India, the world’s biggest real-time payments market, remains the benchmark for what’s possible when it comes to the adoption of new digital services enabled by a robust real-time payment infrastructure.

India’s Unified Payments Interface (UPI) currently leads the already-growing digital payments segment in India, with transaction volumes and values growing month by month. According to the Reserve Bank of India (RBI) data, the digital payments ecosystem in the country has increased at a compound annual growth rate (CAGR) of 55.1% over the past four-five years between 2016-2020.

India is a vivid illustration of the way innovation snowballs when the market forces of demand and competition are unleashed onto a robust real-time infrastructure. As each new use case builds on the last, India’s real-time market is moving swiftly past entry-level use cases, such as person-to-person (P2P) transfers and merchant payments, to bill, tax, and toll payments.

While India is leading, we expect markets around the world to follow its lead. It is low value consumer payments of exactly the type seen in India that drive the highest volumes in almost every real-time payment ecosystem. For consumers, low-value real-time payments means having funds immediately available when sending and receiving money. For merchants or billers, it can mean instant confirmation, settlement finality and real-time information about every payment.

Acquirers’ next move matters

At the center of these experiences are acquirers, a key enabler in the real-time payments value chain for developing and maturing markets alike. As a result, the space is becoming increasingly competitive, particularly as e-commerce has exploded in recent years.

The pressure has never been higher for acquirers to leverage real-time rails to add value beyond enabling merchants to accept customers’ preferred payment mediums, whatever they may be. In the year ahead, they must proactively develop overlay services that enhance the consumer experience, such as Request to Pay — or risk allowing FinTech’s to further encroach on their revenue streams.

With all of that said, however, we are beginning to see the majority of real-time schemes also account for large corporate needs, dispelling the misconception that real-time payments are exclusively a consumer payments and P2P opportunity. It’s early stages in this process, but there’s no technical reason preventing the infrastructures being put in place from handling payments of millions of dollars. Reserve bank or central government sponsorship inspires ample confidence in the reliability of real-time payments.

Regardless of whether real-time schemes are initially conceived to cater to consumer or business needs, the global picture is one in which heavily localised use cases are “the last mile” in the journey to successfully driving adoption. Market to market buying behavior is unique. So too is mobile phone use and the size, strength, and composition of the small and medium business sector—not to mention favoured payment types. So, while the universal top line remains that P2P and consumer to business (C2B) drive the majority of transaction volume growth, business to-business (B2B) use cases promise to create high margin opportunities and drive higher values of transactions through real-time payment networks.

New system operators and participants can learn from established markets about schemes’ functions and features. But, without real-time payment use cases that reflect and build on local factors, adoption will stall.

Europe is taking huge strides towards the next frontier of real-time payments

While India leads the way, we are now seeing the real promise of the next generation of real-time payment schemes in Europe. The announcement of the European Payments Initiative (EPI) – which seeks to increase the number of real-time payments use cases across the continent while consolidating the fragmented payments landscape with an EU-wide card, person-to-person capabilities and a digital wallet – provides significant promise. As does the incoming New Payment Architecture (NPA) in the UK – a potential step-change for the UK payments industry, it will bring greater openness and choice while remaining interoperable with payment services around the globe.

The true opportunity here is the creation of value-add services, which are becoming commonplace with the successful adoption of Request to Pay (R2P) and Confirmation of Payee (CoP). Which highlight the importance of taking a holistic approach with a focus on customer experience and the fundamentals of easy, reliable and secure payments.

The next frontier of payments

It’s clear that Europe is heading on the right path towards the next frontier of payments. By embracing both Open Banking and leveraging real-time capabilities in processing and messaging, the financial industry will be able to harness its customer interactions and data to compete with BigTech and FinTech.

Achieving the nirvana of a fully digitised customer experience at scale means converging card rails and digital. This will drive significant volumes to real-time payments and promises to deliver on a wide range of innovative customer services. The vision is challenging the conventional way of thinking to force a move away from siloed systems which have historically driven inefficiencies, inflexibilities and inconsistencies across payments. With the maturity of instant payments, we now, for the first time in history, have the means to make this vision a reality.

These broad opportunities range from IT simplification and customer centricity to all new revenue-generating services. FinTech’s, big tech and niche players have all focused time and energy on these kinds of use cases.

It is time for banks and intermediaries to do the same, but at a European scale, leveraging customer relationships and data to a greater effect. Those players that can take control of their innovation while having the agility to respond holistically and rapidly are likely best placed to win.


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