Instant Payments are a viable alternative to traditional wire transfers, allowing money to be transferred at any time of the day within ten seconds. We are talking about very rapid payments, literally “in real time,” which have spread quickly in recent years due to increased consumer and business demand for instant money movements. Although Instant Payments are a fundamental step towards the future of payments, their real value can only be realized when complemented by services also known as “overlays.” Such services extend a payment service by building on the existing core infrastructure and offering added value to participants in a payment network. With the launch of many instant payment services, financial institutions want to connect to more than one network and switch between them based on payment volume, prices, transaction limits, and the scope of deposit accounts. As networks determine aspects of interoperability, their participants may benefit from certain overlay services, such as cash management, tokenization, biller directory, fraud prevention services, and customer lists. In summary, overlay services would benefit all participants in the ecosystem and significantly help expand the reach and ubiquity of instant payment services by fostering interoperability across multiple networks.
What are the benefits of Instant Payments and how can you use them efficiently
Through Instant Payments, money is transferred in seconds to the recipient’s account, 24 hours a day, 365 days a year. To make this instant money transfer effectively possible, European payment service providers have agreed on a common set of rules and standards for Instant Payments, called the SEPA Instant Transfer Scheme. SEPA stands for Single Euro Payments Area. The goal of SEPA is to enable euro payments to be made to anyone anywhere in Europe as easily, safely and efficiently as within our own country, whether by direct debit, debit card or bank transfer.
In the world of e-commerce, instant payments eliminate the risk for online merchants of not getting paid, as the release of goods and services can be easily synchronised with the payment. For business-to-business payments, the “instant” form improves cash flow, facilitates funds management, reduces payment delays, and speeds up the payment of invoices. Instant payments can also be a significant tool for financial inclusion. Under EU law, all EU citizens have the right to open a basic payment account regardless of their financial situation or place of residence. The ability to send and receive instant payments from a mobile phone can be an incentive for people to access financial services for the first time or use them more often. Consumers, in particular, can benefit from the flexibility offered by faster payments, avoiding late fees, the risk of overdrafts and damage to their credit scores. In addition, gig-economy workers may be able to be paid immediately for their daily work.
Large companies and SMEs, will constantly strive for the improvement of revenue management systems due to availability of new convenient and efficient digital payment solutions. Retailers across the EU, merchants & SMEs are expected to benefit from reduced fees for receiving electronic payments due to increased competition and choice of available payment means. Finally, public administrations are expected to realize fiscal benefits related to improved tax collection and a greater ability to provide emergency relief to citizens.
Open banking and Instant Payments: the future of payment services
As Instant Payments are on the rise, major FinTech players are starting to explore and implement instant payment functionalities. The European Union Commission recently presented a draft law that could change all this by requiring banks to introduce Instant Payments processed within 10 seconds. Open banking providers have welcomed the legislation as it could lead to a major improvement for the instant launch of open banking payments across Europe. In fact, through open banking systems, ‘account-to-account’ (A2A) payments are rapidly becoming a competitive payment alternative in all sectors, including fast-moving sectors such as e-commerce or investment. Open banking simplifies the handling of instant payments for both consumers and manufacturers and/or merchants.
While European consumers demand a free and easy-to-use instant payment setup in areas such as wealth management, half of them are likely to switch to a competitor offering instant payments. For businesses, instant payments mean better real-time visibility of cash and improved cash flow. Finally, the European Payments Initiative was a recent industry attempt to create a single, uniform, and instant payment solution for retail use, based on SEPA Instant. Thus, there is a need for a payment solution compatible with the open access principles of the Payment Services Directive (PSD2) that can support a rich ecosystem of payment service providers and offer maximum choice for consumers.