The great instant payments opportunity: Ready or not, it’s coming
Instant payments are the norm in many countries. Yet there are still some countries that are slow to adopt, and even slower to maximize the value that it can bring. This is not new – indeed, Celent has been advocating for instant payments for more than two decades. However, changes in the last 12 months mean the question has now shifted from when and if, to what happens if we don’t?
So, ‘why now’? For many, the answer is clear - the industry has moved into the era of real-time value movement. Across multiple arguments, each one on its own is a good reason; together they become compelling.
- Customers expect instant everything.
- Regulators are insisting on instant payments.
- Cross-border payments are increasingly based upon instant payments.
- APIs can deliver instant everything.
- New forms of money are on the horizon that are always on and instant.
- Growing pressure from fintechs and big tech.
Banks need to move on from thinking about whether they offer instant payments or do the bare minimum to be compliant. Increasingly, a full service, robust, scalable instant payments solution will become table stakes. Indeed, not being able to do more in addition will become a barrier to winning or retaining business let alone the wealth of opportunities that can come with instant payments.
The expectations of what instant is, and what you can do with it are evolving too. Today consumers and businesses expect everything to be instant – they wonder if they can send a text message across the world immediately, why can’t the electronic digits representing money move just as quickly? As payments professionals we know why, and it was never just a technology problem. Today though, increasingly it is possible. 85% of transactions now arrive in less than 10 minutes (and often much faster) and are often delayed by the receiving bank not operating 24/7/365.
Furthermore, the line between cross-border and domestic shifting too. FedNow is actively discussing the rule changes necessary to allow cross-border payments. In Europe, TIPS already connects to Nexus, BUNA, PAPSS, and UPI. BUNA itself connects many countries in the Middle East. PAPSS in Africa connects 20 countries. Nexus has five founding countries, with many more expressing interest. As a result, the industry is close to linking billions of bank accounts.
In many corridors, cross-border instant payments are already here. That is a competitive challenge that banks need to address today, and as a matter of urgency. If your bank can’t send instant payments domestically, you won’t be able to do it cross-border, whatever the rail. Or put differently, those of your peers who can send and receive domestically will not only increasingly win business at home, but they will be able to offer a seamless cross-border option as well.
Not One ROI, But Many
The business case for instant payments is complex and made up of a number of factors. For example, while instant payments may well reduce some fees, they will open a range of new fee opportunities. These are distinct from solutions delivered for specific use cases that are unpinned by instant payments. Instead, these refer to revenue that is generated by “just” offering instant payments as business customers will require real-time data, and real-time reconciliation as a minimum, as well as real-time cash management and forecasting services. And ultimately, clients will pay for what things they value.
Most banks use business cases that calculate an ROI, with a minimum level required. By looking at instant payments more broadly, there becomes many ROIs, not just one. The following are examples, but there are many more. Which ones will be dependent on the bank and aligned to its strategy, but they will likely fall into these categories.
- Strategic ROI
This looks at what instant payment could enable. For example, by delivering new products and services, it will not only drive business growth and increased market share, but also client retention, and increased wallet share. - Financial ROI
In addition to the additional revenue, and revenue streams, key bank measures such as cost-to-serve not only become cheaper, but also easier to calculate, and more clearly supports business cases for new products. - Capability ROI
Instant payments have a number of facets that make them interesting. For example, they are not only single message and always on, but designed to be used via APIs, with clear certainty around the payment. That allows banks to build new products utilizing instant payments quickly. This agile method also improves time to market, and therefore time to revenue. - Competitive ROI
Increased and improved capabilities will clearly lead to the bank being more competitive, which in turn allows the bank to position themselves differently. For example, attracting fintech clients is much easier when your technology is demonstrably better than that of your peers. Other banks, such as J.P. Morgan go further, and often talk about them being providers of critical infrastructure to their clients.
This means changing the positioning of instant payments (internally and externally) from a utility or just another payment, to the driver of an experience-driven platform, which in turn creates innovative solutions for a wide range of use cases. In short, it becomes a reusable, flexible tool, that enables change.
Finally, rather than creating a business case for offering (?) instant payments, banks should be asking the opposite question – at what point can a bank afford not to offer something richer than “just” the base level of instant payments?
The challenge for those banks who delay is that it will become increasingly difficult to catch-up. The race against the wave has started.
So what should banks do?
One critical piece is having the right technology in place. While technology is not the only requirement, it is the foundation for success going forward. After all, for many banks, technology is the largest challenge that they face, not least because they were built for an era of batch payments. While not exhaustive, the right technology will have several important features:
- Be a modern, cloud native payment solution that can scale and operate in real-time will be critical. This may be obvious, but being built for the cloud is more than being cloud ready.
- Be truly 24/7/365. Downtime is increasingly being measured in seconds per year – solutions that require maintenance downtime aren’t good enough
- Be architected for flexibility. This will be important for those with greater ambitions. A composable, configurable solution will support the use cases that will become differentiators.
- Be architected for agility. The last decade has seen massive changes, and the next decade looks set for even greater changes. Being able to quickly adapt to new regulations, requirement and opportunities will be key. Solutions that support those changes at speed and with minimal impacts or testing will be key.
Instant payments can do more than move money. Download the Making instant payments pay: Revenue, efficiency, and competitive advantage report for practical insights on growth, efficiency, and differentiation.
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