What are instant payments?
Instant payments – also known as real time payments or immediate payments– are defined by the Euro Retail Payments Board (ERPB) as electronic retail payment solutions that are available 24/7/365. They result in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation).
With over 25 national instant payment systems already live today around the world, and many others in the planning or development phase, instant payments is rapidly becoming the “new normal” for electronic bank payments. Each country develops its own realtime payments system and often these have their own brand names such as Faster Payments in the UK, FAST in Singapore, NPP in Australia, Express Elixir in Poland, Straksclearingen in Denmark, Swish in Sweden.
Instant payment characteristics
Instant payments focus on low value retail payment systems (RPS); they differ from realtime gross settlement systems (RTGS) and distributed ledger payment systems. The generally accepted definition of instant payments, is that systems have the following characteristics:
Immediate credit: The funds become available in the payee’s account immediately (within a few seconds) of the payment being initiated by the payer.
Irrevocability: Once the payer has initiated the payment, they cannot cancel it.
Certainty of fate: When the payer initiates the payment, they are informed immediately (within a few seconds) whether the payment has successfully reached the payee’s account or not.
Key instant payment drivers
There have been clear influences on the demand for instant payments. The spread of smartphones has meant that now, more than at any other time, customer expectations are high. Individuals expect to be able to make a payment anywhere and at any time, including during evening hours, weekends and on public holidays. They also want to be able to pay for and receive their purchases as fast as possible. Suppliers, on the other hand, want the certainty of payment as soon they release their goods and services.
This change of expectations has also had an impact on services such as banks and payment providers. The reliance on traditional banking has fallen dramatically, with customers demanding more convenience and flexibility. There has been an emergence of new fintech payment providers.
These changing consumer attitudes and new technologies have combined to initiate a new era of payments and the roll out of a number of European instant payment schemes.
Instant payments benefits
In addition to meeting the above demands and expectations, instant payments have generated interest from the regulators, competition authorities and payment service providers alike. Regulators believe that instant payments will expand access to banking services, support economic growth, provide alternatives to Visa/Mastercard networks and reduce the use of cash and cheques.
Competition authorities see realtime payment schemes as a way of opening the payment markets to new entrant and stimulate competitions. Whilst Payment Service Providers view instant payments as basis for launching new and innovative products through realtime payment overlay services.
A variety of types of real time payments
As currently there is no universally adopted realtime payments definition this results in different types of systems being categorised as instant payment systems. These variations include hours of operation (24×7 or business hours), transactions types and channels supported, as well as the type of operating organisation (bank led, non-bank led). At InstaPay we try and look beyond RTGS only systems.
Real time payments adoption
The InstaPay Tracker, sponsored by Icon Solutions, provides up to date information on the countries already in the ‘live’ or ‘planning’ phase of rolling out instant payment schemes.