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The deep dive: Instant payments

By Gaia Lamperti

January 27, 2022

  • COVID-19
  • Data
  • Digital Payments
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Instant payments

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend or new product. For Prime subscribers only.

Instant payments are electronic retail payments that are processed between bank accounts in real-time, 24/7, and make the funds available immediately for use by the recipient, instead of the more typical 1-3 business days. Multiple instant payment solutions can help to achieve better competition, innovation and integration, but only if they have a wide reach.

Whilst instant payments initiatives have initially centred around domestic retail payments, in the B2B segment there is a growing expectation for them to evolve into the corporate, cross-border space. Regulations, such as PSD2, and market initiatives like ISO 20022 standardisation are driving innovation and promoting new business models centred around real-time payments.

How does it work?

Instant payments are also known as ‘immediate payments’ and ‘real-time payments’, thanks to their ability to clear the transaction and credit the payee’s account with confirmation to the payer within seconds of payment initiation. They can be initiated between people, businesses and government authorities. Although approaches can differ, the key requirements are the same: to deliver real-time value, increase payment efficiency and boost innovation, while remaining secure and compliant.

Ways in which instant payments can help businesses thrive are:

  • Meeting customers’ demands and expectations
  • Replacing legacy payments systems
  • Favouring business’ growth with real-time funds transfer
  • Use and build value-add services
  • Improve transaction speed
  • Prevent fraud risks in the process
  • Use APIs and open communication channels
  • Keep a competitive edge

Sometimes, instant payments are confused with same-day payments, but these differ in the way they are settled. Same-day payments are processed in batches, as such payments are required to be submitted within a specific time window. Real-time payments, on the other hand, are processed instantly. In the US, real-time payments are managed by the Automated Clearing House, while in the UK they are managed by Faster Payments.

Who is under the radar?

Instant payments in India have grown at an incredible pace, with transactions mostly happening through Unified Payments Interface (UPI). Barring a sharp decline during the onset of the Covid-19 pandemic, UPI payments have been on an uptrend in the Indian subcontinent. Transaction value through UPI has grown by over 60x in the last four years and volume has increased by over 30x.

Among the firms whose platforms allow UPI payments, there are PhonePe, the app powered by Yes Bank, mobile wallet app Paytm, the BHIM app developed by the National Payments Corporation of India, and Axis Easy Pay.

More insights on the topic in our Chart of the Week.

Why does it matter now?

The growth of digital in our day-to-day lives has transformed people’s expectations around payments and innovative real-time payment services are transforming the global financial landscape. Real-time payments technology, in particular, has driven global consumer demand to be able to pay and be paid instantly, putting the onus on market infrastructures to meet these expectations.

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