Instant Payments Are Gaining Marketshare

Stuart Tarmy, Global Director, Financial Services Industry Solutions Blog, Business

Instant payment systems are getting enormous interest around the world.  While the penetration of instant payment solutions today is relatively small compared with credit and debit payment volumes, it is fast gaining momentum in many countries, due in part to the surge in ecommerce during the pandemic.

For example, real-time payments (RTP) volume is expected to hit nearly 72 percent in India by 2025 and Alipay in China has more than 700 million monthly users and over a billion annual users currently.  ACI projects rapid expansion of  instant payments in terms of both volumes and values.  Specifically, instant payments from 2020-2025 are projected to grow at a compound annual growth rate of 43.4 percent, or 6.2 billion additional transactions per year. The share of instant payments in the marketplace is expected to grow by 500 percent over the next 4 years, from 0.6 percent to 3 percent, while other electronic payments will grow from 75 percent to 80 percent and cash transactions will fall from 24 percent to 17 percent.

The instant payments market was dominated by Asia Pacific in 2020, making up 38 percent of the global revenue. Such real-time payment growth is being powered by small and medium enterprises in the region and continued economic growth, in addition to more business spending in IT and technology. In the European Union, about 8 percent of EU transactions were via real-time transfers last year, but that’s expected to hit more than 10 percent by the end of this year.

Experts believe the global instant payments market is ready to crack wide open and grow at a 33% CAGR because of the many benefits for the payment system to move to instantaneous payments rather than having to wait for a payment to take three days to settle.  The U.S. “is a mega market with enormous real-time payments potential that, to date, remains almost completely untapped,” says Mandy Killam, head of North America at ACI Worldwide. “Today, it finally stands on the cusp of a real-time payments transformation – all that’s needed is bold action from one or more of the market’s incumbents to nudge it into the mainstream.”

Opportunities and Challenges

The potential of instant payments isn’t lost on the rest of the world, either. Currently, the European Payments Council, a nonprofit organization that is an advocate for banks and payment service providers, is focusing on instant payments and wants to help push RTP growth in the European Union. This is seen as significant because it means harnessing 27 member states into one instant payments scheme, which is believed critical in building capacity and resilience in instant payments for the EU market.

Other countries, such as Saudi Arabia, recently announced an instant-payments service through a collaboration with Mastercard’s Vocalink and IBM.  While the country mostly still has cash-based consumers, it’s clear the pandemic has pushed many to digital channels for the first time.

In addition, the introduction of fiber optic networks and high-speed broadband services around the world, and its resulting impact on WiFi availability, offers promising mobile growth opportunities in  instant payment solutions. Last August, Google extended its partnership with several U.S. banks in order to eventually set up digital bank accounts through Google Pay and give consumers greater smartphone access to instant payments.

Of course, there are challenges.  Online fraud is growing and expected to hit nearly $41 billion by 2027,  a trend that could put a damper on instant payment growth. At the same time, instant payments will need to address the preference by consumers to use credit cards because of their loyalty programs and ability to dispute charges. However, there is some movement to address those concerns, such as in Japan where there is a push to link rewards to instant payments.

Here’s where instant payments stand now around the world:

  • United States: The pandemic has been a springboard to launching real-time payment capabilities in the United States and more merchants will be looking for the best digital payment experiences at the fairest prices. For example, The Clearing House launched the RTP network in November 2017 to bring real-time payments to the United States.
  • European Union: The challenge for the EU is the large amount of fragmentation that still exists, whether it’s mobile wallets only working on a national level or 10 EU countries that aren’t compatible with other EU countries. A new market infrastructure service called TARGET Instant Payment Settlement (TIPS) was launched in 2018. Payment service providers can offer fund transfers to customers continually in real time.  TIPS is an extension of TARGET2 and settles payments in central bank money. TIPS is based on the SEPA Instant Credit Transfer (SCT Inst), which allows for pan-European instant payments and is expected to be employed by a major portion of payment service providers across Europe.
  • China: The country has completely embraced digital payments, whether it’s for upscale hotels or roadside fruit stands. In fact, the country moved past credit cards and went straight to smartphone-based instant payments, which businesses see as simple to use. The dominant payment apps are Alipay (1.2 billion monthly users in 2019) , which runs through Alibaba and WeChat Pay (more than one billion users in 2018), which runs through Tencent. The total mobile payments in China are more than $41 trillion.  Anyone with a Chinese ID can use Alipay to send money overseas, but transfer amounts and transactions are limited in amounts and frequency. Interestingly, the instant payments system bypasses banks from payment transactions, which impacts a usual revenue source.
  • Japan:  The idea of offering rewards for instant payments is top-of-mind in Japan. In 2019, the Japanese government announced a subsidy for promoting cashless transactions in the country. As part of that initiative, it envisions being able to offer shopping points up to 5 percent of the shopping value to customers using cashless payment methods – a clear salvo in the effort to win over consumers who may still prefer credit cards with loyalty programs.  Japan allows money to be transferred to other bank accounts anytime through the Japanese Bankers Association system.
  • United Kingdom:  Brexit has not affected UK instant payments. The UK is still a member of SEPA, and payments between the UK and EU will be treated the same.
  • India:  The good news for India is that the country’s digital payments use is exploding. The bad news? So is fraud. It’s expected that real-time payments volume will hit nearly 72 percent of all payment transactions in 2025, but cyberattacks surged to more than 11 million last year. India’s Unified Payments Interfaced was launched several years ago and provides a real-time nationwide digital payments platform that is regulated by the Reserve Bank of India. In a new development, Google Pay app now allows U.S. users to transfer money to India and Singapore.
  • Brazil: Called “Pix,” the state-owned instant payment system developed by the Central Bank of Brazil went live for the entire population at the end of last year. It’s aimed at not only accelerating and simplifying transactions, but seeks to attract big players in the instant payments space like Facebook and Google.
  • Canada: The Real-Time Rail payments system recently announced it will use Interac Corp. as the exchange solution provider for the country’s instant payments system. It’s not clear how this move will affect smaller Canadian fintechs, but fintechs hope it will be easily accessible and provide innovation opportunities. The Real-Time Rail is seen as a key in the drive to update the infrastructure, rules and standards that are the foundation of Canadian payments. RTR is slated to be introduced next year and will be operated by Payments Canada and regulated by the Bank of Canada.
  • Russia. Not one to be left out of a global trend, the Russia Federation in 2019 launched Faster Payments System, aimed at giving users an instant person-to-person transfer ability. A dozen Russian banks and payment service providers helped develop and pilot the program  A key to its success will be enabling instant payments on smartphones, as Russia has remote and rural areas that may only have access via mobile channels. Still, cash is still the preferred method of payment in Russia, making up 85 percent of payments in 2019. Common digital wallets include QIWI , Yandex.Money and Webmoney, while MasterCard and VISA are used for online transactions.
  • Indonesia. Although still in the planning stages, the potential for instant payment adoption by the population is huge. Bank Indonesia’s instant payments system BI-FAST and wants to modernize the payments system at a time when sending money between Indonesia banks can be confusing. Singapore and India are serving as models.

As many consumers used instant  payments for the first time during the pandemic, they became more accustomed to the idea and convenience, and may continue the practice once economies open back up. However, companies, governments and fintech companies need to be ready to offer further enticements to grow the customer base, the right technology to make it easy to use and scale, and the protection of consumers from fraud.

Learn more

Learn how Aerospike ensures secure, online user authentication, friction-free payment processing and powerful fraud prevention with real-time data and AI-powered analytics.  Read the Top 4 Data Strategies to Accelerate Digital Payments Transformation eBook or read about how PayPal is putting data at the heart of its fraud Strategy with Aerospike.

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    Stuart Tarmy, Global Director, Financial Services Industry Solutions

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    Stuart is Global Director, Financial Services Industry Solutions for Aerospike. He has over 25 years of experience as a General Manager and head of sales, marketing and product management for leading global financial service technology, ecommerce, payments, AI/ML, data management and predictive analytics (Big Data) companies. He has held senior executive roles with Fiserv, Albridge Solutions (acquired by Pershing/BNY Mellon), MasterCard, and McKinsey & Company. Stuart began his career as a design engineer at Texas Instruments developing machine-learning based computing systems. Stuart holds an MBA from the Yale School of Management, a MS in Electrical Engineering from Duke University, and a Sc.B. with Honors in Electrical Engineering from Brown University.