Instant Payments: how the impact of ‘the new normal’ in payments will affect consumers and businesses

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Customer expectations have already shifted to a 24/7 mindset, expecting companies to move faster and to be more decisive in customer support functions. With Instant Payments quickly becoming the new normal this is now going one step further.

This year, many Dutch banks introduced the possibility for their customers to make ‘Instant Payments’. ING, ABN AMRO, Rabobank, SNS Bank, ASN Bank, RegioBank and Knab all have enabled their customers to send and receive payments in a matter of seconds. Within the Netherlands the maximum amount for Instant Payments is uncapped and processing the payment will take around 5 seconds. For international Instant Payments within European borders the maximum amount is € 15.000,- and processing will take around 10 seconds. This new service is available 24 hours a day, 365 days a year and allows the amount to be credited immediately to a beneficiary. The beneficiary has access to the funds within seconds.

Consumers are increasingly expecting to get what they want quickly, round the clock and at the push of a button. This also goes for their payments and that is why Instant Payments will quickly become the new normal. Instant Payments have many benefits but also bring about challenges for the organizations that provide these payments. Payment providers should prepare themselves for the impact Instant Payments will have on their business.

Instant Payments worldwide 

The Netherlands is not the only country that has been involved into creating an Instant Payments scheme. Instant Payment schemes have been introduced in a wide range of countries, with very different levels of integration and readiness. Currently, according to instapay.today, a website that brings together the latest insights from across the payments world, there are 46 payment schemes live, 12 planned, and 8 hybrid schemes. Instapay categorizes a scheme as hybrid when there is a live payments system but is not a true Instant Payments system. The worldwide frontrunner, according to the annual Instant Payments report ranking by FIS, is India. Over 5.2 billion transactions were recorded during 2018. For two years in a row, they have been recognized as the leading provider of Instant Payments because of the system’s standard, published API and strong participation from third-party vendors. With the ‘go live’ of several SEPA countries, we can clearly see that Instant Payments are becoming the new normal and that now is the time for people and companies to act to get the most out of the opportunity.

Source: www.instapay.today

Benefits for both business and consumers

So, what’s in it for you? A distinction should be made between businesses and consumers, for both groups there are multiple advantages. Let’s start off with the business benefits. First benefit could be an even lower amount of cash payments for merchants: customers can pay in-store through bank transfer, next to the regular card options. The same is already happening in Sweden through a mobile payment solution called ‘Swish’, launched in 2012 by six large Swedish banks in which a customer’s phone number is connected to his/her bank account and payments can be transferred in seconds. Another benefit is cashflow improvement: businesses will be able to receive payments during the weekend and immediately spend and/or invest this money again. Furthermore, businesses can serve their customers better by offering them an additional safe and quick way of paying. Lastly, for certain B2B markets, doing business over the weekend becomes a lot easier: the value of all kinds of raw materials (for example grain) can now be determined during the weekend and sold based on this.

For consumers, one of the benefits is an instant bank transfer between you and your friends: this can be convenient in many situations (for example splitting the bill in a restaurant). Also, purchases through platforms such as online auctions website marktplaats.nl become easier and safer: it can be done on the spot. Both the buyer and seller instantly know that the payment was processed. Another benefit is a reduced necessity for large cash payments: creating new opportunities to pay on the spot for goods such as a car or even a house. Lastly, in certain unexpected situations Instant Payments can be of great value, think of using your travel insurance and needing an instant pay-out to be able to pay for a hospital bill.

Challenges for organizations 

Especially in the adoption phase of Instant Payments there will be considerable challenges for organizations. The overarching challenge for both banks and organizations is to focus on safety, integrity and trust. On the side of banks, the focus will be on screening and monitoring transactions. We have summarized the top 3 challenges that organizations will face.

  1. Increased pressure on Service Level Agreements: Pressure on SLA’s, in terms of invoices, where both companies and customers alike will be getting more and more used to instant repayment (e.g. credit invoices). This also means that a company will have increased pressure on cashflow and cash positions and because of that might have to rethink its cash management.
  2. Interoperability between payment schemes: Interoperability between the different Instant Payment schemes is still quite a far away. For companies this means that the banks they choose can be of strategic importance with regards to offering Instant Payments to their clients. A worldwide coverage of Instant Payments for your multinational might require you to have a spread of different payment schemes.
  3. Fraud: It is considerably more difficult to deal with fraudulent payments if they are irrevocable. For this reason, the UK has started a campaign designed to tackle financial fraud. Furthermore, the interoperability and fragmentation of the different payment solutions can become the cause of not meeting customer demands. Therefore, it should not come as a surprise that a new study has shown that 93% of US companies fail to meet the consumer demands regarding Instant Payments, with customer satisfaction suffering because of it.

Because there will still be many business solutions to follow the first steps into Instant Payments, the ever-changing mindset of both the customer and companies should be considered. Customer expectations have already shifted to a 24/7 mindset, expecting companies to move faster and to be more decisive in customer support functions. With Instant Payments quickly becoming the new normal this is now going one step further. Businesses need to be ready for this this change in order to keep up with customer demands. Organizations need to act now and overcome the challenges mentioned earlier to reap the full benefits of Instant Payments and catch up with the already shifted mindset of retail and commercial clients. Would you like to know more about Instant Payments and how it can affect your business? Please reach out to us.

This article has been co-authored by Jelle Jansma and Maarten Sjouke .

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