Why is the world going “gaga” over instant payments?

Gone are the “not so good” and “old” days of money orders, postal orders and cheques. Gone are the days of going through the long waiting periods for actual money to be sent or received. Some of the old timers who have not understood or are too scared of the word “digital” may disagree with the new generations living with the ease and fun of being digital. But there are many – even the baby boomers and generation X along with the newly coined xennials – who have taken up the fast and secured benefits of ‘instant’ payments, thus leaving behind forever the day-long and hour-long waits for making transactions.

In today’s world of instant news, instant coffee, instant social media feeds or instant messages, ‘Instant Payments’ as defined by ERCB – electronic retail payments, are available 24/7 resulting in real time or near real time (in seconds) settling of payments between the originator and the beneficiary.

Let’s look at why there is so much talk about instant payments in the recent times and why even the regulators all over the world advocate its benefits and push all banks to adopt real time payments. It was Japan which implemented the first ever real time payment followed by Switzerland, Turkey, Taiwan, Iceland, South Korea, Brazil, Mexico, South Africa , Chile, China, India, Nigeria, Poland, Sweden, Denmark and Singapore in its order.

We have now UK FPS moving into instant payments, SEPA Insta pay being launched, KSA and UAE planning to launch their instant payments. Instant payments have benefits not just for retail users but have far reaching benefits for banks and corporates alike.

If we look at the benefits derived by the banks, the first and foremost is the overall reduction of costs once their platforms are upgraded. Another important factor is opening up new lines of business by offering services to third-party providers as well as corporates. It could directly lead to increase in the scale of business offerings and lowering of TCO. They can also bundle services as part of instant payments to effectively address customer needs and offer value added services that aid customer retention.

The age old adage of “customer is king” is now truer than ever before. It is generation Z which now drives the banks, compelling them to modify and adapt their offerings as opposed to banks deciding what customers should have. This is the direct impact of Fintech-driven technology that has even pushed the big banks against the wall. Many banks are grappling with this, and are losing their foothold in the market. Social media, customer experiences and analytics could even corner some of the banks to the brink of almost becoming irrelevant.

Just the other day, at 10 pm, I remembered about a payment I had to make towards electricity bill as it was the last day. It took me less than a minute to do that using instant payments. Instant payment to the regular chai wala, vegetable vendor, juice corner or an interior decorator are now literally possible without carrying a physical wallet. And it is providing us a service 24X&X365 also.

Instant payments have become a boon for small time vendors and small and medium enterprises that generally depend on cash or cheques. It benefits both the parties where the supplier gets instant credit confirmation for handing over the goods while the purchaser gets satisfaction by getting to see or gauge the quality and quantity of the goods before making the payment.

The benefits of instant payments can also be extended to cross border payments which are usually expensive and take at least a day for settlement. One such example of instant cross border remittance is the use of distributed ledger technology where a bank is using the technology to instantly credit the salary to its employees across the globe. This also means that corporates need not send the payment files in advance inviting liquidity risks, but can do it any time, any day of any week.

In the B2B scheme of things, the opportunities that instant payment offers may be numerous. One such example could be international trade where companies go through the process of escrow maintenance and documentary letters of credit. For such trades instant payments could be made through escrow accounts for the quantity and/or quality of service rendered. However, currently, use cases for instant payments are not many in this area. But this may change once insurance and logistic issues and details are sorted.

The list of applicable use cases and the benefits that can be derived with instant payments are infinite if properly understood and applied.