Are Instant Payments just becoming a Commodity? – Stig Korsgaard, Engagement Director, Nets
Instant, real-time or immediate payments are now considered to be “the New Normal”. In some countries instant is already “the Normal” and has been for some time.
Pushed by competition, regulatory pressure or just as a result of the “Instant Payments wave currently being ridden”, many countries and banking communities around the globe are in the process of planning, tendering and implementing instant payments solutions. This comes at the same time as the few existing frontrunners that already have made the migration are starting to think about a next version of their instant payments scheme.
This is a good thing, because there is no doubt that looking ahead instant payments will be fundamental and critical in the financial sector to cope with increased competition and higher customer expectations, whether this is serving the needs of millennial’s or responding to the on-demand economy´s growing influence. Some could even claim this is the future cost of being in business.
So you would think it should be easy to make the business case and present a strong argument, although being the new normal, it is difficult to do this the traditional way, as several failed attempts have shown. But be assured the phrase “Build them and they will come” is as true as the phrase “Offer them and you will profit”.
“In God we trust” is though not always enough and hence there seems to be an increasing number of communities that view instant payments – either as lacking a concrete business case or not having sufficiently powerful use cases – to become the necessary new normal. Merely responding to market “hype” or regulatory mandate to rapidly launch an instant payments service can make instant payments be treated as a commodity. In this scenario the definition of instant payments should be restricted to a simple account-to-account instant credit transfer.
I would offer the opinion that this would essentially lead to disaster and will not help long-term survival or profitability. To be successful instant payments require long-term and on-going investment in capabilities and service development.
The key here is the highly competitive nature of the market today and the fact that building an instant payments solution is much more than just delivering account-to-account credit transfers instantly. This new infrastructure must serve the needs of multiple stakeholders and last for the next 10-15 years.
Competition, use cases, and customer requirements will constantly evolve. You may seize the market for a short while, but with new more agile competitors like Apple, Facebook and others entering the financial services industry, banks will have to think and behave differently and take a long-term investment view. So the value proposition will persistently require innovation, development and refinement, as also will the functionality to be supported.
The issue though is if instant payments were initially seen as a commodity, then the appetite for investing more has probably not been present, which means that the supported capabilities of the instant payments service have been restricted to a bare minimum.
So how to deal with new use cases, PSD 2 requirements, corporate requirements in B2B, local requirements, loyalty programs, merchant payments or any other growing need for functionality? Well you have to make new investments and often these come with a high price tag particularly if you selected the wrong platforms in the first place.
The point is that as the pressure for instant payments rises so do expectations. Some desire instant payment systems to take over support for most other types of existing payment transactions. But this is very different to delivering a commodity payments service that often the market has determined must be offered for free to consumers.
Therefore when investing in a new instant payments platform it is a mistake to mirror that viewpoint and just go for the lowest possible investment hoping this will solve the issue.
From a TCO perspective, scalability, flexibility, VAS, overlay services, time to market for new services, open API´s, etc. is equally important and will offer a much more competitive outlook as well as diversity in options also way beyond the core of instant account-to-account credit transfers. You should be investing in building a financial services instant payment “super highway”.
So while the initial investment may be higher – the good news is – that these types of solutions are available, and the long-term financial returns can be greater. Experience shows that once positive use cases are implemented, user adoption becomes rapid and the future looks healthy. It quickly becomes a vibrant eco-system that is a fundamental and natural part of the financial sector and society as a whole.