Why instant is critical to payments.
Physically handing over cash for payment of a product or service is the critical definition of real time payment (RTP). Financial institutions have been talking about RTP for a long time and it has become critical for online payment transactions as the world moves away from cash. Critical to this speed and data communication is the New Payments Platform (NPP), originally announced back in 2013 as part of a collaborative exercise between 13 of Australia’s banking institutions. Slow to begin with, the last years have seen an increase in technology integration to finally enable RTP to occur via cooperation between banks and third party Fintech providers. Taking 3 days to a week for financial transfers to occur, are now a thing of the past as instances of mere seconds to transfer money are commonplace.
Having said that, challenges remain as RTP is not happening in a universal way with legacy systems home and abroad not adopting ‘immediate’ as the defining transactional term. Juniper Research defines an instant payments scheme as ‘any payments scheme where the funds are capable of being received in ten seconds or under, outside card networks.’ The objection to this definition often comes from legacy data flows, banking ecosystems and card payment infrastructures, which all have inherited thinking around holding onto money as long as possible. Add disruptive Fintechs as additional stakeholders and you have a recipe looking for success but not getting everyone to the table when required.
Person to person (P2P) payment options have long been popular and functional when you look at examples such as PayPal, Zelle and Venmo. That ease of functionality has the business world scrambling for similar if not better solutions and as it moves away from cash transactions, RTP has become critical to B2B financial transactions. Forecasts see B2B instant payments over the next 5 years reaching $18T, with Europe and Asia leading the way, while the US with its paper based cheque mentality lagging behind. Even with the US falling behind, by 2025, B2B RTP will account for the majority of global transactions as the general value of B2B far outweighs consumer payments. The automation, early settlement discounts and e-wallets will help to facilitate and solve the complex accounts payable and receivable problems that B2B payments thought impossible.
As B2B payments become dominant, instant becomes critical for the banking industry and for the Fintechs looking to build solutions for local, regional and global movement of money. The frustration of time and cost, so inherent in our current financial systems will soon be a thing of the past.