With countries increasingly embracing a 24/7 culture and digitalization, instant or real-time payments (RTPs) are gathering momentum – the value of processed transactions is expected to rise by 289% by 2030. Japan pioneered instant payments in 1973 with the Zengin System, and the UK introduced the Faster Payments Service (FPS) in 2008. But more recently, the technology has entered a new phase of growth, fueled in part by the success of Unified Payments Interface (UPI) in India and Pix in Brazil – implemented in 2016 and 2020 respectively.
At last year’s Summit, Anmol Sahib, Product Marketing Manager for Payments at Sopra Banking Software (SBS), Jacques-Arthur Clabé, Payment Strategy Manager at Galitt, and Romain Rica, Product Manager for Payments & Cards at SBS, discussed the ever-changing landscape. Valuable talking points included evolving regulations, cloud-based systems, and emerging technologies like artificial intelligence (AI) revolutionizing the instant payments’ arena. We explore the topic below.
Today’s instant payments market
Many countries successfully use instant payments, increasing pressure on financial institutions (FIs) to push the technology further. In 2022, real-time volumes grew 63%, representing $195 billion in transactions, as per ACI Worldwide’s report. Meanwhile, Statista forecasts the market size will reach $376 billion by 2030.
However, there are geographical variations, and although Europe lags in terms of absolute numbers, it’s accelerating fast. Volumes have more than doubled in value since 2021 – a growth rate of 102%.
That being said, the sector is fragmented, with almost one solution per European nation, including:
- Paylib: France
- iDEAL (acquired by The European Payments Initiative) : Netherlands
- Vipps: Norway
- MobilePay: Denmark and Finland
- Bizum: Spain
Regulations come into play here, aiming to standardize instant payments and increase transaction volumes.
Evolving instant payments regulatory landscape
In November 2017, the pan-European SEPA Instant Credit Transfer (SCT Inst) scheme was launched to “provide a single set of rules, practices, and standards and increase harmonization of instant payments in Euros”. However, the uptake of SCT Inst was less than expected. At the end of 2022, the European Commission (EC) went down the legislative route, proposing several key measures focusing on consumer safety, affordability, and availability:
- Payment service providers (PSPs) offering Single Euro Payments Area (SEPA) Credit Transfers will give customers the option to send and receive instant payments across all channels.
- SEPA Instant Credit Transfer charge will be equal to or lower than the fees for SEPA Credit Transfers.
- Instant payments providers will provide a service that checks the international bank account number (IBAN) against the payment beneficiary’s name, and before authorizing, the payer will be warned about a detected discrepancy/potential fraud/typing error.
- Instant payments vendors will follow a harmonized process for sanctions screening, decreasing execution time and risk.
Provisionally agreed at the end of 2023 and approved on February 7th, 2024, the Instant Payments Regulation updates the current SEPA rules and is designed to ensure “transferred funds arrive immediately into the accounts of retail customers and businesses across the European Union”.
The rules say “money must arrive in the recipient’s account within 10 seconds, and PSPs should have “robust and up-to-date fraud detection and prevention measures” in place. In terms of application, the following time frames apply:
- Approved regulation comes into force 20 days after publication in the EU Official Journal.
- After nine months of enforcement, banks must be able to receive instant payments and implement sanctions screening.
- After eighteen months, they must be able to send instant payments and implement IBAN name check.
The Instant Payments Regulation will complement the third Payment Services Directive (PSD3), the Payment Services Regulation (PSR), and the One-Leg Out (OLO) Instant Credit Transfer (OCT Inst) scheme – initiatives bringing important changes to the world of instant payments and aiming to boost volumes.
Leveraging instant payments
Regulations place more obligations on FIs to provide real-time payments, but they shouldn’t be viewed as constraints, says Jacques-Arthur Clabé. Instead, they should be seen as “real opportunities to develop value-added services”. The UK is a case in point, developing cutting-edge innovations alongside their Faster Payments Service (FPS):
- Variable recurring payments (VRPs): Allow customers to safely connect authorized payments service providers (PSPs) to their bank account, enabling PSPs to make future payments on their behalf, within agreed (and changeable) parameters. Use cases range from paying taxes and tackling late payments to subscription-based services.
- Sweeping: Automatically moving funds from one account to another in real-time – for example, current to savings.
In mainland Europe, FIs are monetizing instant payments (combined with open banking) in different ways. From a business-to-business (B2B) perspective, fintechs are developing payment initiation services (PSPs) that enable multiple real-time payments at the same time to various suppliers.
On the business-to-consumer (B2C) side, PSPs allow people to instantly pay for goods directly from their bank account without leaving the retailer’s website or app. At the same time, merchants bypass costly card processing fees.
What do FIs expect from their software providers?
With new opportunities for innovation come additional expectations from banks toward software vendors when it comes to instant payments solutions. They seek:
- Best-in-class fraud detection and prevention, using technologies like AI, machine learning, and advanced analytics;
- Properly managed data, enabling the successful provision of personalized services.
- Cloud-native (and agnostic) architecture that’s highly available, uses a microservices approach and implements zero-trust security.
- Lower costs via a platform that scales automatically uses open-source technology, and automates deployment, testing, and monitoring.
Indeed, according to a report by Volante Technologies and Finextra, banks see “payments as a high-priority area for technology investment”, with 72% surveyed expecting to “up their budget for payments modernization”.
Revolutionizing instant payments
The newly approved Instant Payments Regulation paves the way for a more efficient, safe, and harmonized financial sector and higher transaction volumes. Alongside that, real-time payments encourage banks to develop innovative value-added services for increasingly demanding customers. To help them deliver, software providers are upping their instant payments’ solution game.
Watch the “Accelerating Transactions: The Payments Revolution” Summit session here. Head to Sopra Banking Software’s Instant Payments solution for information on our next-generation modular platform.
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