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Instant Payments And The Overlay Service Opportunity

We live in a 24/7, super-connected world and have grown used to instant access to information and services at the touch of our smartphones. No wonder we want the same convenience and certainty when it comes to how we bank.


Instant payments may be the way we’ll get both that convenience and that lack of latency. They’re also good for the wider, economy; as payments are immediately exchanged, financial liquidity improves and lessens settlement risk. For consumers, instant payments are time-saving and efficient, making it easier to manage their vital personal finances, too.

But it turns out financial services is also looking at the concept as a springboard for new, compelling customer propositions that could well boost business and cement customer loyalty. The challenge, then, is to quickly build a real-time ecosystem to do this. The problem is that there’s no escaping the fact it requires an investment move from today’s rather messy legacy systems to the cutting-edge mobile-driven, secure instant payment world we all want to get to. Alas, the payment infrastructure has not kept up with the mobile world and the consumer’s thirst for apps. It really isn’t unusual, for example, to have a purchase delivered faster than the actual payment transaction is made. Something needs to change.

For some banks, mere customer satisfaction, increased market liquidity and reduced risk, may not automatically justify a hefty investment in an instant payment infrastructure. But as with many areas of digital transformation, the decision isn’t about the short-term and associated costs but about a roadmap for the future.

Instant payments will actually be an essential offering to compete with new Third Party Providers as well as non-bank Payment Services Providers. That’s because the real opportunity from the new instant payment ecosystem is all the value added services that will arise from it.

The customer relationship is central

The thing is, banks aren’t the first to spot this. New payment service providers, retailers and tech companies are all piling into this space. This should come as no surprise as what’s really at stake here is the customer relationship – and ultimately, all that valuable personal data.

Thus a flock of new services are being developed, by both banks and non-bank payment service providers, such as optimisation of loyalty schemes and budgeting or receipt management. These ‘overlay services’ will soon encompass the whole purchasing experience. Examples include automated matching of purchase orders to invoices or in-store promotions that are dynamically triggered by a consumers’ purchase history. Expect more. (Better: design your own.)

Getting ready for instant payments

Moving to the new instant payments world won’t be easy. First off, new technology is required, which means replacing batch-based legacy systems unable to cope with real-time workflow.

And to support many of these new services, instant payment systems must be fully integrated with other systems and services, e.g. cash management. At the same time, your internal processes need to be far more transparent and efficient, or you risk being unable to balance funds, leading to issues with liquidity.

Also, banks will need the resources and processes in place to support real security in depth. Real-time payment systems dramatically cut the time available to identify fraud, which means having to invest in extremely robust fraud detection applications and payment interdiction processes.

Instant payment transactions are also irrevocable, which means banks need much stronger customer authentication and encryption processes for online and mobile banking.

Keeping the instant payments door open

Despite all this, the future for instant payment solutions is bright. These new overlay services will speed up the development of instant payment solutions and vice versa.

At the same time, the new dynamic will keep the customer relationship at the centre of the banking ethos. This is paramount, as the Payment Service Directive 2 is about to give third-party providers access to bank accounts for payment initiations. Instant payments and regulation in the form of the Directive will drive innovation in the European payment space and will be central to controlling the payment process and competing with mobile network operators, cards, and non-banks.

Indeed, the banks’ stranglehold over payment systems is almost at its end. The European Payments Council has already released proposal for the design of a pan-European instant payment scheme with the aim of bringing real-time money transfers across the Single Payments Arena (Sepa) by November 2017, for example. That will lay the foundation for innovative payment methods such as mobile person-to-person payments.

Only those that offer customers the instant services they demand will survive. Will that be you? Or will you let new entrants shut the instant payments door in your face – and not let you in?


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