Instant payment for dummies
This #PayDecoding, Instant Payment for dummies helps you to keep up appearances in front of your kids… and push your expertise a little further!
Payment initiation should not be confused with instant payment (IP).
Payment initiation uses open-banking APIs to create a payment user experience. Whereas instant payment is the “rail” that enables the payment.
In Europe, for example, payment initiation can use SCT inst (IP) or on SEPA (payment within 24 hours).
Payment initiation does not necessarily imply instant payment and vice versa.
Today we can send instant messages, but making an electronic payment can take 24 hours.
An electronic payment order submitted over the weekend may not even be initiated until the next working day…
Instant payment (IP) allows you to make payments with your mobile phone as quickly and easily as with cash.In Europe, for example, it is possible to receive and send instant transfers of up to €100K, 24 / 7 / 365, in a target time of 10 seconds with funds directly available to the recipient.
One of the features of IP is that it is independent of the historical interbank clearing and settlement mechanisms, which means that it is an immediate account-to-account transfer.
For consumers of banks that sign up, they can make a payment directly from their bank account without having a card issued.
This means that we will see more and more ‘pay from your bank account’ options alongside the conventional payment card options.
Some use cases :
- You sell your car to a private individual: with the IP in your pocket, you just have to give the keys!
- The IP allows you to share the bill with your colleagues at the restaurant: you go out, the accounts are done!
- You want to lend money to a friend: the immediate availability of funds allows him or her to go immediately to the ATM to get the money back.
- At the second-hand shop, that old armchair catches your eye: a photo of the QR code placed in front of it, and the merchant immediately notices the funds in his account. The chair is yours!
- Your flight delayed? You inform your insurance company, which issues a IP. The funds are immediately available to buy another ticket or pay for a night’s accommodation.
Instant payments eliminate the risk of not getting paid, as it is easy to synchronise the sending of the purchased good or the provision of the ordered service with the payment.
Thus, since 2018, Leboncoin (a P2P French shopping platform equivalent of US craigslist) acts, thanks to IP, as a trusted third party between buyers and sellers:
the platform immediately receives the funds, and as soon as the buyer validates the transaction, the platform immediately releases the funds to the seller.
Instant payment is also attractive in business:
- IP improves cash flow, facilitates the management of funds, reduces payment delays and speeds up the payment of invoices.
- Some are turning to IP to pay salaries: IP is booming in the entertainment industry because it allows contractors to be paid on the day they perform.
Worldwide, instant payment is growing rapidly.
Currently, 60 markets have a real-time payment infrastructure.
Canada, Peru, New Zealand and Indonesia will join the movement this year.
This means that almost three quarters of the world’s population (about 72%) have, or will soon have, access to instant payments.
In 2022, their global transaction value will reach $4.8tn.
In 2026, it’ll hit $27.7tn*. That’s a growth rate of 470%.
Launched in 2015, India’s Unified Payment Interface (UPI) is now the most popular way for Indian users to transfer money between themselves and to businesses.
To make their payment, customers can choose from:
- Telephone numbers,
- bank account numbers
- or email (e.g. [email protected]).
Customers can use the application of any bank or non-bank to initiate a UPI payment, regardless of which institution holds their account.
Launched in 2017, SCT Inst (SEPA – Single Euro Payments Area – Credit Transfer Inst) is the first pan-European payment system designed for P2P, B2C and B2B payments.
It covers 34 countries and is irrevocable.
In 2018, the TIPS (TARGET Instant Payment Settlement) infrastructure, based on SCT Inst, ensures that any bank account holder in Europe can be contacted 24 hours a day, 7 days a week, 365 days a year.
And cross-border initiatives are on the rise!
Nearly 250 million people around the world send more than $500 billion in cross-border funds each year, according to a 2021 Citi report.
But these cross-border payments are characterised by high costs (on average 6.5%), low speed, limited access and insufficient transparency.
In Southeast Asia, for example, Thailand, Singapore and Malaysia are piloting cross-border initiatives, as are Taiwan, India, Australia and Hong Kong.
As systems around the world move towards standardisation and interoperability to promote trade, real-time cross-border payments could become as common as domestic payments.
Some fintechs using instant payment:
- PayLip (FR)
- Bizum (ESP)
- iDEAL (NL)
- Blik (POL)
- Zelle (US)
- Osko (AU)
- Faster Payments (UK)
- Fintecture (FR)
- Lydia (FR)
- Plaid (US)
- Tink (SE)
- TrueLayer (UK)
- Salt Edge (CAN)
- RTP (US)
- FAST (SG)
- FedNow (US)
- SCT Inst (Europe)
- Faster Payments (UK)
- IMPS (IN)
- NPP (ASTL)
- IBPS (CN)
- Kevin (LT)
*Instant Payments – Reshaping the payments ecosystem – Juniper research. August, 2021
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