Real-time payments have revolutionised banking, helping to reduce the cost and time involved in moving money online. They’ve enabled FIs to boost efficiency, liquidity, and act as a catalyst for growth, especially in fast-paced, digital-led economies.
As businesses and consumers become used to the convenience of real-time banking, they’re now looking for similar experiences and benefits when buying goods and services from merchants.
A recent ACI study found that 195 billion real-time transactions were recorded in 2022, a growth of 63% on 2021. That figure is forecast to reach USD 511 billion globally by 2027.
Real-time payments are expected to account for around 28% of all payments globally by 2027.
ACI Worldwide’s ‘Real-time payments revolution: be fast or be last’ event sought to uncover how the industry might move forward in this new space and which are the benefits for consumers as adoption goes beyond banking.
Debbie Guerra, the Chief Product Officer at ACI Worldwide, engaged in a discussion about the dynamic and constantly evolving landscape of global payments. ACI Worldwide, a major player in the industry, facilitates more than a third of real-time payment services worldwide, benefiting 1.8 billion individuals.
In North America, a significant development is the convergence of FedNow with the Clearing House, marking one of the pioneering real-time payments initiatives in the region. This collaboration has led to the widespread adoption of instant account-to-account payments, empowering financial institutions, merchants, and consumers with an array of choices and capabilities. ACI played a pivotal role as one of the early pioneers in partnering with FedNow.
From its early involvement with FedNow, ACI has successfully launched its real-time payments cloud. This cloud-based infrastructure offers native payment rails designed to support not only FedNow but also to serve as the foundation for broader expansion into instant payments across different global regions. This includes initiatives like the UK's new payments architecture and various immediate payment mandates.
ACI's real-time payments cloud is not just about facilitating swift transactions. It also incorporates fraud scoring services and provides flexibility in deploying solutions, catering to the unique needs of different stakeholders.
Despite the US entering the real-time payments arena later than other countries, ACI is highly optimistic about the recent launch of FedNow. They view it as a significant milestone, especially considering it's already operational with customers, not just in the certification phase.
Statistics indicate a remarkable 63.2% growth in payment transaction volumes from 2021 to 2022, underscoring the momentum of real-time payments. It is estimated that real-time transaction volumes will reach a staggering USD 511.7 billion by 2027, further solidifying the importance of this payment paradigm.
In 2022, 27.8% of all electronic transactions were processed in real-time, highlighting the growing significance of this mode of payment. ACI firmly believes that real-time payments have the potential to spur economic growth, a trend observed in various other regions. One of the promises of real-time payments is financial inclusion. This means ensuring that underserved or underbanked individuals and entities can actively participate in the electronic payment space, bridging financial gaps and fostering economic empowerment.
Furthermore, the ability to send and receive payments swiftly is becoming increasingly important to consumers. Instant gratification has become the norm, and people expect their money to be delivered and settled rapidly.
The introduction of ISO 20022 messaging formats, which enable the inclusion of rich data alongside payments, is poised to revolutionise the payment landscape. This development opens the door to new use cases and greater personalisation in overlay services, something that was previously unavailable with traditional electronic payments.
Some of the anticipated use cases for real-time payments include social payments, where disbursements to citizens can be processed in real-time, as well as the convenience of QR code payments, B2B Request to Pay, Direct Debit, and even offline payments. These use cases signify the diverse range of applications and benefits that real-time payments can bring to the table, promising a transformative impact on the world of payments.
Real-time payments have emerged as a transformative force in the global financial industry, and industry experts from diverse backgrounds are shedding light on this dynamic shift. Gijs Boudewijn, representing the Dutch Payments Association, Ron van Wezel of Datos Insights, Silvia Zaccaria from IKE Retail, Paul Amisano of the Federal Reserve Bank of Boston, and ACI's Craig Ramsey are delving into real-world use cases and the strategic advantages that leading organisations are capitalising on.
Craig Ramsey: Real-time payments are account-to-account transactions that can occur round the clock, 365 days a year. The notion of the payment system being unavailable at any time is obsolete, as real-time payments ensure instant accessibility to funds for the beneficiary. Globally, around 70 countries have embraced domestic real-time payment schemes. These schemes coexist with existing settlement and wire systems, ACH capabilities, ushering in fresh payment avenues for consumers, businesses, merchants, and corporations.
Governments are embracing real-time payments with fervour, recognising their potential to foster financial inclusion and provide enhanced liquidity for both individuals and businesses. ACI's research underscores that real-time payments have a positive impact on economic growth, boosting a country's GDP. Additionally, real-time payments lead to heightened customer satisfaction, further driving their adoption.
Ron van Wezel: There is a consumer demand for instantaneous fulfilment, a trend that extends to digital payments. Consumers expect immediate responses, and this expectation has been recognised by financial institutions. Real-time payment clearing and settlement of a massive volume of transactions has become possible due to the exponential increase in computing capacity worldwide.
Real-time payments have become ubiquitous in markets like Australia, India, Brazil, and soon, across Europe. Notably, around 72% of banks have either completed or are in the process of implementing real-time payment solutions. Looking to the future, merchants stand to benefit significantly from real-time payments, offering pre-authenticated and efficient transactions that eliminate chargebacks and reduce costs. Security is also enhanced as real-time payments do not require data sharing with merchants, alleviating PCI security requirements.
India's UPI system is a shining example of a successful real-time payment system, catering to consumers without credit or debit cards.
Gijs Boudewijn:
In Europe, where the market is fragmented, there are efforts to create a unified internal market. The Netherlands stands out as a pioneer in instant payments, with initiatives dating back to 2015. This movement was driven by retailers' desire for 24/7/365 availability. Although iDeal processed a substantial 1.2 billion payments in 2022, it still relies on legacy infrastructure.
Instant payments are gaining momentum, with the aim of becoming the standard, even though they currently make up just a small portion of non-cash transactions. In various countries, including European nations, instant payments were initially considered a premium service, often associated with a higher cost. This pricing model posed a significant hurdle to the widespread adoption of instant payments and was recognised as a major challenge by the European Commission.
We are at a unique juncture where we possess the essential building blocks – the infrastructure for instant payments – that offer a genuine substitute for card-based transactions, with the potential for cost savings. Merchants exhibit a keen interest in novel and alternative payment methods, primarily when they offer a distinct pricing advantage. The innovative solutions we are currently forging in Europe revolve around the concept of delivering instant payment capabilities precisely at the point of interaction, whether it pertains to physical retail stores, point-of-sale systems, or the realm of ecommerce. From the merchant's standpoint, these solutions must not only deliver tangible and significant value but also be more cost-effective compared to the existing options in the market.
Silvia Zaccaria:
At IKEA, Silvia Zaccaria notes that consumer behaviour remains consistent across different global locations. Secure order placements and payments are paramount for customers, as is a seamless, rapid checkout experience. Payment method preferences vary, depending on personal choices and the nature of the purchase. High-value transactions are increasingly favouring alternative payment methods, such as iDeal in the Netherlands or Swish in Sweden, over traditional options.
Paul Amisano:
With FedNow, the focus is on building a network and platform for innovation. FedNow aims to provide the infrastructure for industry players to create user experiences, apps, and connectivity solutions. The goal is to make it easy for banks, businesses, and consumers to leverage the platform for their needs.
FedNow aspires to be use case-agnostic, flexible, cloud-based, and extendable, accommodating a wide range of service providers, fintechs, banks, retailers, and others to develop tailored experiences on top of this innovative platform.
Finally, Craig Ramsey shed light on the remarkable transformation taking place in India concerning how consumers engage with merchants, describing it as nothing short of phenomenal. While acknowledging the vast cultural differences between India and the United States due to their diverse populations, when comparing their banked populations, they are surprisingly similar. However, what sets India apart is the sheer volume of real-time payments conducted weekly, a figure that surpasses what the US achieves in a year. This discrepancy highlights an immense potential for growth and shifts in consumer behaviour.
India offers an intriguing case study. In the country, it's common to encounter UPI QR codes that facilitate quick money transfers. Street vendors, merchants, and even coffee shops prefer UPI transactions over cash payments. This widespread adoption poses a challenge for tourists who rely on physical currency. To address this issue, India is considering introducing UPI wallets, allowing tourists to fund them using their cards right at the airport. This digital wallet could then be used for real-time payments with local merchants.
Craig Ramsey believes that this approach could be a game-changer on a global scale, offering a strategy that transcends borders and has the potential to reshape payment dynamics worldwide.
To Catch up with the whole event, have a look here.
ACI Worldwide is a global leader in mission-critical, real-time payments software. Our proven, secure and scalable software solutions enable leading corporations, Merchants, fintechs and financial disruptors to process and manage digital payments, power omnichannel payments, present and process bill payments, and manage fraud and risk. We combine our global footprint with a local presence to drive the real-time digital transformation of payments and commerce.
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