The Future of Payments – Time to Take Off the Blinkers

Instant payments, characterised by their speed and availability, are transforming the financial landscape across the globe. The Asia-Pacific (APAC) region in particular, has emerged as a leader in adopting and innovating in instant payments. Despite being a ‘Cash is King’ region, APAC’s innovations and focus on financial inclusivity and interoperability has seen phenomenal growth rates in the adoption of digital payments, which are expected to continue. In a previous blog, my colleague has questioned the need for drastic changes to alternatives to existing instant and card payments in the UK; the classic “if it ain’t broke, don’t fix it” strategy that did wonders for Nokia. With UK’s NPA back to the drawing board, and the ‘National Payments Vision Report’ soon to be published, this is a great opportunity to take a step back and take a global view of what is happening in instant payments.
This blog explores the instant payments landscape in APAC markets at the forefront of instant payments and while there are differences between APAC and UK, such as socio-economic factors, that drive the payment landscape, this blog outlines some examples that the UK can learn from.

Instant payments in APAC: a snapshot

India’s UPI has revolutionised the payments ecosystem since its launch in 2016 attributing its success to open banking principles by enabling seamless, real-time transactions through a unified interface integrating multiple banks and payment service providers and their differing apps effortlessly. The widespread use of QR codes for merchant payments has made digital transactions ubiquitous – even in small and rural businesses. Recent enhancements such as the introduction of credit lines on UPI further broaden its utility by integrating credit products into the payment system.

Singapore’s FAST system and PayNow service exemplify the country’s advanced payment infrastructure. Whilst FAST provides instant interbank A2A transfers, PayNow, built on top of FAST, allows individuals and businesses to link their mobile numbers or IDs (NRIC/FIN) to their bank accounts whilst also making use of offline and QR code based payments facilitating easy peer-to-peer and business transactions by simplifying the payment process. Singapore’s efforts to link PayNow with similar systems in ASEAN and APAC countries – its integration with Thailand’s PromptPay in 2021 marking the world’s first real-time cross-border payment linkage – has enhanced regional trade and commerce.

Australia’s NPP provides open access infrastructure allowing various financial institutions and fintech firms to innovate and offer new payment services. It supports data-rich payments enabling the inclusion of detailed remittance information enhancing reconciliation processes for businesses. NPP supports overlay services like Osko, which facilitates additional payment services like request to pay and proxy-based payments.

Similarly, Malaysia’s DuitNow, Thailand’s PromptPay, Japan’s Zengin System & JPQR initiative, Indonesia’s BI-FAST, Hong- Kong’s FPS and many other APAC instant payment markets facilitate instant fund transfers using proxies such as mobile number, national IDs or email and include QR payments, bill payments and e-commerce, aiming to create a comprehensive digital payment ecosystem as well as enabling linkages to other Instant Payment Systems in the region for real-time cross border payments, thereby enhancing regional connectivity, and user experience for both merchants and consumers.

Lessons for the UK

UK’s Faster Payments Service (FPS) has been a global pioneer in instant payments with a 100% banked population. With card usage also being prevalent across the UK offering many point-of-sale efficiencies, one can easily make the argument that UK’s socio-economic situation and thus, payment landscape, is quite different to that of APAC. There are still many valuable lessons to be drawn from the APAC experience with the features below needing to be implemented for UK instant payments to be a viable alternative to cards.

1. Embrace interoperability – One of the standout features of APAC’s instant payment systems is interoperability. The UK’s FPS (or future NPA) could benefit from greater integration with various digital wallets and fintech platforms. Open Banking is a step in the right direction, the question remains if it is good enough? Ensuring seamless interaction between different payment systems can enhance user convenience and drive adoption.
2. Leverage proxy & QR code payments – The success of proxy based (mobile number, national ID, email or QR Codes) payments across APAC highlights the importance of simple low-cost technologies in promoting digital payments. Past failures such as PayM and PingIt should not be deterrents but rather seen as experiences to learn from; key mistakes being – no single product brand across industry and not offering API interfaces. The UK could build on Mastercard’s ‘PayByBankApp’ service (which appears to be making similar mistakes as PayM and has low take-up) and instead have a single branded method across industry and expand the use of QR codes for merchant payments, particularly for small businesses, to reduce reliance on card terminals and enhance transaction efficiencies.
3. Enhance cross-border payments – APAC’s efforts in linking national instant payment systems for cross border transactions offer valuable insights and show they are well on the path to aligning to the G20 priorities for enhancing cross border payments. Though exploring Immediate Cross Border Payment (IXB) improvements, the UK should ensure credit transfer messages support SEPA OCT Inst to enable bi-lateral payment linkages with Europe. That said, the UK should keep a close eye on the Nexus Initiative implementing multilateral linkages of instant payment systems globally. Such integrations would benefit businesses locally and those engaged in global trade not to mention having a positive effect on the economy.
4. Expand data-rich payment capabilities – Australia’s NPP demonstrates the advantages of data-rich payments. The UK must enhance FPS (or future NPA) by incorporating richer data fields enabling better transaction tracking and reconciliation which in turn is beneficial for businesses.
5. Foster public-private collaboration – The development of instant payment systems in APAC has often involved close collaboration between governments, central banks, and private sector players. The UK should continue to foster such partnerships to drive innovation, ensure regulatory compliance and enhance security and efficiency.

Conclusion

To meet the needs of customers, UK instant payments must modernise. Customers are calling out for payments to be simplified and have a choice of features and services; merchants are voicing concerns about the overreliance on costly card networks and there is a pressing need for seamless cross-border payments to enhance trade. The APAC region’s diverse and innovative instant payment systems offer a wealth of insights providing benefits to customers. The region’s advancements in instant payments provide a roadmap for the UK to enhance its payment landscape and reduce its overreliance on card networks by offering instant payment as a viable alternative By embracing interoperability, leveraging simple technologies like QR codes, and improving cross-border payment capabilities, the UK can enhance its own payment landscape ensuring a faster, more secure, robust and more inclusive financial ecosystem for its population.
As the global landscape evolves, learning from APAC’s successes will be crucial for maintaining the UK’s leadership in financial innovation. We, at Icon, are looking forward to the National Payments Vision Report to see if the blinkers have been taken off and it has taken a view on any of the features mentioned.