• Customer’s need for overlay services –
To meet the Customer’s growing demand for immediacy of retail payments Customers expect to pay for and receive their purchases as fast as possible. Suppliers, on the other hand, wish to have the certainty to be paid as soon as they release their goods and services.• Need for banks to remain competitive –
Instant payments will help banks to not just stay competitive by improving the transaction velocity, reducing fraud risks in the transaction processing but also boost its business growth by offering holistic payments solutions spanning the value chain in order to differentiate from Non-Bank Players.• Regulators need for encouraging competition and digitalization –
Regulators and central authority’s top agenda is to promote fair competition, Anti-Money Laundering, customer protection, and improving clearing & settlement mechanisms and digitalization of the economy.• Need for ubiquitous Payments –
Industry’s growing demand to modernize legacy payments infrastructure across countries to offer more ubiquitous payments instruments.• Non-bank player’s need for customer acquisition –
There will be a level field in a post PSD2 world and Non-Bank players want to enter into this space and use Instant Payments as a potent tool to drive significant market customer growth.• Dramatically improves the transaction velocity, overall efficiency and therefore customer’s satisfaction.
• Reduces fraud risk in the transaction processing by reducing transfer time.
• Creates new revenue sources and business growth by offering holistic payments solutions.
• Reduces transaction, treatment and settlement costs and nearly zero cost of cash management, handling and reconciliation for merchants.
• Reach new markets
• Obtain competitive advantage of being providers of holistic payment services
• Retail Payments Strategy:
In September 2020, the European Commission published the European Retail Payments Strategy (RPS), which will constitute the base for the strategy on payments-related regulatory changes in Europe for the following years. The RPS covers the matter of instant payments, which is expected to become the “new normal”. The RPS points to a possible need for a legislative initiative for instant payments, in order for it to become widely used in case adoption is not the desired one. This proposal could make it clear which payment service providers (PSPs) should be subject to obligatory participation in the SCT Inst scheme. Moreover, the RPS proposal points to a revision of the Second Payments Service Directive (PSD2) and states that ways to promote the use of electronic identity (eID) and solutions based on trust services will be explored as well in order to support the implementation of strong customer authentication (SCA) requirements under PSD2 for account login and initiation of payment transactions.• Euro Retail Payments Board (ERPB) Framework for interoperability of instant payments at the point of interaction:
In March 2020, the ERPB established a working group on a framework for interoperability of instant payments at the point of interaction. In the context of this document, an instant payment at the point of interaction is a transaction based on SCT Inst, by a consumer to a merchant at the point of sale (POS) in a store or a payment page on an ecommerce/m-commerce website. Furthermore, it analyses instant payments and the point of interaction models involving a Payment Initiation Service Provider (PISP) or a Collecting Payment Service Provider (CPSP) as a collecting entity of transactions on behalf of the merchants and their respective impacts on the interoperability of instant payments.• Public Consultation on Instant Payments:
In March 2021, European Commission launched a public consultation document that is aimed to inform the Commission on the remaining obstacles to the wide availability and use of instant payments in the European Union. The consultation also seeks to identify factors that would stimulate customer demand (corporate users and merchants alike) towards instant credit transfers. According to the document, for an instant credit transfer to be successfully completed, at each end of the transfer there needs to be a PSP adhering to the same set of rules, practices, and standards for the execution of a transfer, such is the SCT Inst scheme. An interoperable system that would lead to a broad level of participation by PSPs is a key precondition for the wide availability of euro instant transfers at the European level. As of March 2021, only 64.6% of PSPs from the member states have joined the SCT Inst. In addition, the consultation tackles the idea of incentivizing payments market players to offer convenient pan-European payment solutions based on instant credit transfers. The results of this consultation will be used to support Europe’s open strategic autonomy in the macro-economic and financial fields.• Instant Payments currently does not have a proven business case – there is uncertainty on if customers would be willing to pay premium for the service?
• Banks would face investment costs (both one-off & on-going maintenance) as a key challenge – depending upon the complexity of the implementation with the existing systems.
• Implementation would be challenge especially when banks would like to integrate it with its existing infrastructure/systems and implement in parts.
• How will banks handle AML and KYC requirements in an instant environment?
• Interoperability will be a key challenge – as different countries may operate with different schemes. There is a call from the payments regulatory bodies for at least one single uniform scheme to serve Euro transactions in Europe
• (According to EACHA – A published pan-European scheme is a pre-requisite to create the necessary clarity for infrastructures and operators in the clearing and settlement space, to design working solutions)
• P2P (Person-to-Person):
Like – Instant money transfer of funds between consumers to instead of cash.• P2B (Person-to-Business):
Like – instant e-commerce or bill payments for utility bills – electricity, rent, gas, other payments for services like – electrician, cleaner etc.• B2P (Business-to-Person):
Like – instant pay-out of salaries, pensions, insurance claims, etc.• B2B (Business-to-Business):
Like – instantly paying taxes or fines/penalties, or simply one company paying for certain services from other company. (eg printing brochures)• Scheme layer (end user scheme and banking scheme layers)
• Clearing layer
• Settlement layer
• Reach:
R2P provides real time access to bank accounts, reaching a larger population than cards or wallets• Low cost:
R2P results in a step change in merchant costs, potentially moving to a model in which fees are measured in ‘cents’ rather than ‘percents’.• Risk and Controls:
R2P may reduce fraud and chargebacks because the consumer authenticates with their bank and approves each transaction. A reduction in payment decline rates could improve customer experience.• Reconciliation:
Information is captured along with the payment transaction ensuring a perfect match between payment and purchase. Rich information is facilitated by adoption of ISO 20022 messaging standards.• Real time settlement:
When RTP schemes are built on real time payment rails, the merchant receives funds instantly rather than waiting for two or more days.• Tokenization:
A powerful feature of RTP in some countries is that payments can be initiated through an email address or phone number; i.e. banking details are not obtained from the consumer. This makes customer registration easier, may facilitate consumer adoption, reduces merchant pain points with Payment Card Industry Data Security Standards (PCI DSS) and reduces the risk of personal data breaches.• Reduction in late B2B payments:
Businesses in many countries suffer from late payments – an efficient RTP process may help them get paid quicker and reduce Days Sales Outstanding (DSO).• Checkout:
A consumer shops on a merchant’s website and chooses to pay through their bank.• RTP initiation:
The merchant initiates an R2P to the consumer’s bank, sending details of the purchase.• Authentication:
The consumer authenticates with their bank through a web or mobile channel.• Approval:
The consumer is presented with details of the payment then approves the transaction.• Confirmation:
The merchant receives assurance from the payer’s bank that the payment is on the way, enabling the release of goods or services.• Payment:
The consumer’s bank sends the payment to the merchant’s bank through a clearing system, ideally in real time.• Strong Customer Authentication (SCA):
Customer experience is an overriding consideration in the digital world and merchants have concerns about users being forced through two-factor authentication requirements for every transaction. The most painful experience would be for a user to first log into their bank and then have to go through additional two-factor authentication to release the payment. Merchants seek a frictionless, risk based approach that enables smooth checkout and minimizes abandoned carts.• Mobile Experience:
Mobile commerce is a fast growing segment of e-commerce that is particularly sensitive to the checkout experience given the small screen size and variable internet connection speeds. R2P needs to be optimized for mobile commerce through integration with banking mobile apps, fingerprint or One Time Password (OTP) solutions.• Recurring payments:
Related to the issue of SCA is the ability for R2P to process recurring payments like monthly subscriptions, which can be fixed or variable amounts. Merchants are looking for a seamless customer experience and risk based approach, with only the first transaction subject to SCA.• Confirmation:
R2P schemes must provide merchants with an unequivocal confirmation for each successful payment so that they can release goods or services in the expectation of being paid. An acknowledgement by the bank that they have received the R2P is not sufficient.• Loyalty:
In the current paradigm, merchants are not content that their collections fees are used to fund loyalty with third party organizations through the medium of card rewards. In the new direct to bank world loyalty will be provided by merchants to encourage take up of new payment methods, and the merchants will seek to keep that loyalty within their own ecosystem.• Checkout:
A consumer shops on a merchant’s website and chooses to pay through their bank.• RTP initiation:
The merchant initiates an R2P to the consumer’s bank, sending details of the purchase.• Authentication:
The consumer authenticates with their bank through a web or mobile channel.• Approval:
The consumer is presented with details of the payment then approves the transaction.• Confirmation:
The merchant receives assurance from the payer’s bank that the payment is on the way, enabling the release of goods or services.• Payment:
The consumer’s bank sends the payment to the merchant’s bank through a clearing system, ideally in real time.• Strong Customer Authentication (SCA):
Customer experience is an overriding consideration in the digital world and merchants have concerns about users being forced through two-factor authentication requirements for every transaction. The most painful experience would be for a user to first log into their bank and then have to go through additional two-factor authentication to release the payment. Merchants seek a frictionless, risk based approach that enables smooth checkout and minimizes abandoned carts.• Mobile Experience:
Mobile commerce is a fast growing segment of e-commerce that is particularly sensitive to the checkout experience given the small screen size and variable internet connection speeds. R2P needs to be optimized for mobile commerce through integration with banking mobile apps, fingerprint or One Time Password (OTP) solutions.• Recurring payments:
Related to the issue of SCA is the ability for R2P to process recurring payments like monthly subscriptions, which can be fixed or variable amounts.Merchants are looking for a seamless customer experience and risk based approach, with only the first transaction subject to SCA.• Confirmation:
R2P schemes must provide merchants with an unequivocal confirmation for each successful payment so that they can release goods or services in the expectation of being paid. An acknowledgement by the bank that they have received the R2P is not sufficient.• Loyalty:
In the current paradigm, merchants are not content that their collections fees are used to fund loyalty with third party organizations through the medium of card rewards. In the new direct to bank world loyalty will be provided by merchants to encourage take up of new payment methods, and the merchants will seek to keep that loyalty within their own ecosystem.