EBAday 2018 and avoiding the instant payments ‘cliché’
There was one overwhelming take away for me from EBAday in Munich. It was that the phrase “instant payments is the new normal” has become meaningless. The statement fails to capture the magnitude of the impact real-time payment processing has: the wealth of use cases it offers, the opportunities for the API economy it brings and the customer expectations it will create. In short it fails to convey the true impact on the banking industry – reducing it to a cliché that minimises both the threat and opportunities of instant payments.
This was reinforced by Petia Niederländer from ERSTE Group who argued that framing Instant payments as the ‘new normal’ isn’t helpful for the market. Quoting a recent survey which says that 70% of companies are keen to shift to instant payments, the question for banks is how do you deliver value? Petia argued that delivering value via instant payments will require substantial system changes. And if we refer to instant payments as the new normal, we don’t adequately communicate the scale of advantages as well as the risks.
Use cases and expecting the unexpected
Gerhard Bystricky at UniCredit Bank AG highlighted that corporate use cases are often overlooked when it comes to instant payments. Gerard was part of an EBA task force that tried to predict and mitigate for potential use cases when instant payments was being developed. In an audience poll, real-time data for corporates was voted the most valuable benefit of instant payments. This was something that the task force hadn’t foreseen in its research and industry consultation. Actually, real-time data was another hot topic at EBAday with many of the delegates interested in how instant payments can be leveraged by the API economy to better meet the future needs of customers.
The reality is that there is a wealth of use cases for instant payment for both consumers and businesses. If you haven’t already, take a look at Faster Payments UK’s new whitepaper: “A decade of Faster Payments: The impact of real-time, and predictions for the future”. It includes a thought leadership piece on use cases by Hunch, the strategic innovation practice, who describe the potential impact real time payments could have on business-to-business (B2B) supply chains. By using a variety of technologies – remote sensing and tracking to know exactly when orders arrive, the use of blockchain for contracts to add security and traceability, and Faster Payments to release funds in real-time, businesses will have less money locked up in their supply chains and will be able to run more efficiently. Instant payments is a key factor in making services like this possible.
Agility is key
Agility is critical if banks are going to be able to meet the – often unforeseen – payments needs of their corporate, merchant and retail customers. In another EBAday panel, focussed on “Practical experiences with Pan-European Instant payments”, the panellists were united on one thing. It’s not the payment itself that matters, it’s the services you enable with this new infrastructure. With little margin to be made on payment transactions (i.e. money movement), banks and the vendor community need to work closely with their respective customers to uncover latent and hidden needs on which to base new services upon and generate new revenues.
And we are already seeing a rise of these new innovative services leveraging instant payments. NatWest recently announced a partnership with the Carphone Warehouse to trial an online shopping system that lets customers ditch their debit and credit cards and pay directly through their bank account. This followed hot on the heels of Deutsche Bank’s pilot project with the International Air Transport Association (IATA) to test a disruptive new payment model aimed at reducing processing payments costs between airline clients and airlines. Deutsche Bank will collect customer payments direct from consumer accounts rather than via credit and debit transactions, meaning that payments will be processed and received in near-real time, resulting in improved speed, security and transparency as well as more convenience for travellers.
Initiatives like this are only going to accelerate. Dave Birch, of Consult Hyperion, posted a blog recently stating some initiatives, such as the banning of surcharges for credit card payments “will push retailers into having their own apps that exploit open banking and use instant payments instead of cards.”
Reaping the benefits of instant payments
Instant payments is essential to meeting the demands of these new market structures and models, and those that deliver it first will reap the rewards. However, a recent survey from InstaPay amongst their banking community highlighted that there are many still yet to commence their instant payments journeys and leverage the new opportunities instant payments could deliver. With the use cases for instant payments so compelling, what is causing this delay?
At the end of the day, the winners in the instant payments race not only need to have the best ‘plumbing’ in place, but also need to be able to predict and react the quickest to the market to deliver the kinds of services that will drive the adoption of value added products in the future. Ultimately, instant payments is transformational. So let’s forget the ‘new norm’ and describe it in those terms instead.