Creating customer value from new technologies

19 July 2018


I recently had the pleasure of speaking at an event in Paris organised in partnership with DXC, one of Icon’s partner organisations. The audience included representatives of banks and corporates, and we discussed current and future use cases for instant payments.

When instant payments are discussed, most people immediately think of person-to-person (P2P) use cases, such as splitting a restaurant bill. A real-life example is my daughter at college, who often calls me at lunch time to say “I’m going to buy my lunch, can you put some money on my card, please?” I can make the instant payment, and by the time she walks to the shop, the funds are available for her to spend on her debit card.

However, person to person soon blends in to Customer to Business (C2B) use cases, as people give examples like paying the babysitter or the gardener or the window cleaner. In these cases, instant payments are displacing cash or cheque payments – small businesses often find it too difficult and costly to accept card payments. But Instant Payments – especially when combined with technologies such as Open Banking and Request to Pay – can also displace card payments. Deutsche Bank recently announced a joint initiative with IATA to promote the use of Instant Payments for airline ticketing. This is very attractive to airlines who currently pay huge amounts of interchange fees for card transactions. Banks that want to participate in this need to consider the overall business model, where fees agreed with merchants replace the fees that they currently earn on card transactions (which are under pressure in any case).

Another example of C2B payments is utility bills. In the UK, many customers pay their water, gas and electricity bills by Direct Debit, which the companies love – payments are reliable and can be reconciled automatically. What’s missing is a good solution for the rest, who currently pay by cheque, cash, or card – or who pay late, partially or not at all. The UK plans to introduce a ‘Request to Pay’ service that will allow utilities to send requests to their customers. The customer can choose to pay – in full or in instalments – at any time between receipt of the request and the pay-by date, giving them more control than the fixed date of a direct debit, while offering the same ease of reconciliation to the utilities.

In the opposite direction, instant payments also have great potential for Business to Consumer payments. Natixis Assurances recently announced that they will be using SCT Inst to offer a premium service to their clients. “Immediately after presenting their insurance claims, insured customers will have their bank accounts credited in real time with the compensation paid out.” This is faster, more convenient and more cost-effective than sending out cheques.

The domain where it’s most difficult to find compelling use cases is Business to Business (B2B) payments. Companies usually negotiate payment terms of 30 days or more with their suppliers and enjoy the free credit this provides. Why would they want to make instant payments? Yet even in this area, innovative companies are discovering benefits in instant payments. One of the first big users of Faster Payments in the UK was a major online marketplace. They saw a competitive advantage in offering instant pay-outs to their merchants, to whom cashflow was a major issue. (Incidentally, their first attempt to connect to the service failed, because their bank had not properly enabled Faster Payments on their corporate channels – the bank lost the business, a clear example of the danger of not keeping up with client demands). Another example is SnapCar, the French ride-hailing B2B company, which is providing instant automated pay-outs direct to their drivers’ accounts – a real benefit for workers in the gig economy with tight cash-flow.

The conclusion of the session was that instant payments are going to change the way that banks and companies do business. Instant payments provide the foundation, it’s up to innovators to build valuable services on top of it, leveraging the connectivity and interactivity offered by APIs to embed payments into wider business processes.

Technology is vital to compete successfully in this world of innovation and change, so banks need a flexible IT platform that empowers and supports them as they create new digital payment offerings for their customers. IPF is designed to deliver the pace of change for tomorrow’s world, while providing a rock-solid, performant and scalable execution engine.

Tom Hay