Instant payments – make or break in Europe? I Blog
21 / 06 / 2023
Since their introduction in 2017, the adoption of instant payments is slow, especially compared to other payment technologies and processes that have emerged in the digital age. However, their use is increasing, and with the European Commission's instant payments proposal on the horizon, the playing field may change.
At EBAday 2023, the impact of EU regulation proposition and the opportunities presented by instant payments were discussed by an expert panel. In this blog, we break down what may be coming for businesses seeking to make better use of instant payments, and how increased opportunities lead to further business capabilities.
Unlocking the potential of instant payments
Both for businesses and consumers, instant payments can provide numerous benefits. Besides speed and convenience, they allow PSPs and merchants to take greater advantage of the rapidly evolving technology that people carry in their pockets - smart devices.
Payment Service Providers (PSPs) can use instant payments to realise several business models and opportunities. In a user-experience focussed era, instant payments present opportunities for PSPs, facilitating Person to Person (P2P) payments and Point of Sale (POS) payments, as well as optimising and simplifying payments such as utility bills, E-commerce transactions and business invoicing.
The European market can look to Asia, where the instant payments market is more mature. During the panel discussion at EBADay it was highlighted that, despite the Asian and European markets differing in regard to the number of legacy payment instruments and infrastructures, huge learning opportunities are presented.
On the cusp of a new era
In today's instant world, where consumers expect products and services to be fast and convenient while businesses explore new ways to enhance their offerings and user experience, instant payments seamlessly fit in. Indeed, the panel stated that the industry has to adapt to increased speed and resilience requirements, which does not represent a significant concern since this is part of the industry's core business and capability.
Widely used technologies such as QR codes can be integrated with instant payment systems, making payments convenient for merchants and consumers, reducing friction and aligning with the abilities of a rapidly digitising society.
In addition, Request-to-Pay (RTP) and SCT Inst at POS open the door for swifter payment requests and fulfilment across banks, account types, devices, platforms and territories. In both cases, instant payments form an integral part of the process.
Using instant payments and RTP can lower operational costs through smoother reconciliation and settlement for businesses. In particular, PSPs are presented with the opportunity to fill gaps in business offerings by developing outsourcing payment portfolios, which can pass on cost and efficiency savings to businesses and merchants.
The impact of EU regulation
Across the EU, instant payments have the potential to unlock new avenues of e-commerce, cross-border commerce and opportunity. From the panel discussion at EBAday, it became clear that universal reachability in this regard is key, as is operational resilience.
From Worldline’s perspective, along with guidance from regulation, it will become even more crucial for banks to rely on third-party providers for services to achieve this. This is especially true in regard to fraud detection, which will have to continually adapt in line with threats.
Existing EU financial regulations, such as the Revised Payment Services Directive (PSD2) and SEPA have fostered innovation while ensuring security, privacy, and customer protection. Released in 2022, the European Commission's legislative proposal on instant payments aims to continue this approach in making instant payments in euros available to all citizens with a bank account in the EU/EEA.
In doing so, the legislation will place certain expectations on PSPs, such as:
- PSPs who offer credit transfers in euros should also offer instant (SCT Inst) payments.
- End fees for instant payments should equal or be less than those of standard credit transfers (SCTs).
- All PSPs should provide more transparent payment updates and processes.
- Enhanced fraud and security checks
It could be argued that by flattening the playing field and placing expectations on PSPs and financial institutions, regulations inhibit the development and uptake of new technologies and opportunities. However, backing incredibly impactful technologies such as instant payments with robust legislation might make the difference between success and failure. Indeed, the indications from the panellists were that regulations will lay the foundations for further development and act as an enabler, accelerating and guiding progress towards truly revolutionary end-user experiences.
In conclusion, massive opportunities for banks are presented by instant payments. However, as a mid-session poll indicated, more than 50% of banks will come to the realisation that their current infrastructure is insufficient. Therefore, it will become crucial for them to incorporate the capabilities of third-party payment providers, such as Worldline, to better serve their customers. Doing so and utilising the framework regulations provide, will set banks up for success in the rapidly evolving instant payments space.
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