Real-time payments are one of the most significant financial innovations of the last decade. They have benefited from multi-fold growth in adoption and have boosted micro digital economies across the worlds’ developing, and developed nations alike. As reported by FIS, India was the global leader in 2020, processing 41 million transactions per day, at a growth rate of 213 percent.
This article takes a bird’s eye view of the evolving real-time payments ecosystem and explores its future.
Types of Instant Payment Mechanisms
Primarily, there are three kinds of real-time payments (RTPs) that differ from one another in small but significant ways:
● Instant bank transfers that use account numbers (the traditional approach)
● Real-Time Payment transfers are from one bank account to another using an alias like a mobile number or unique id
Here are the key characteristics summarized below:
The Global RTP Landscape
This article will analyze RTPs that has revolutionized the payments space with wide acceptance from customers. Below is a brief snapshot of RTP features from key countries. It should give you an idea of how India is faring in the space:
Trends Driving Real-Time Payments
Based on our experience of working with some of the world’s most progressive payment ecosystems, we see a few distinct trends emerging:
Technology players are leveraging existing capabilities for product innovation. Big techs like Google and Amazon are leveraging their existing infrastructure and customer base to offer innovative financial products. GPay is one such example. The RTP infrastructure is also spawning an ecosystem where third party firms are offering innovative products to customers - PayTM for instance is offering mutual fund investments leveraging the underlying infrastructure and Whatsapp is venturing into the payments space.
Real time payments are fueling tech innovation and vice versa. Banks and financial institutions are seeing the business value of modernizing the technology they use. They are using the data generated to build customer insights and offer personalized experiences. Many are also experimenting with blockchain-based solutions and cryptocurrency.
COVID-19 has accelerated the adoption of no touch instant payments. Real time payment solutions are delivering value especially in industries that have high customer touch points such as retail, restaurants, movie business, etc.
Even as the excitement around RTPs is at an all-time high with UPI transactions recording ground breaking numbers, India needs to proceed cautiously considering the complex challenges observed over the last few months.
Challenges with a RTP Solution
Mass Penetration. Often, customers are wary of using non-traditional payment modes due to lack of awareness, safety concerns or habitual reasons. Merchants and traders in rural areas or small towns might also be reluctant to invest in setting up new modes of payment.
Building a robust infrastructure. Countries often struggle to set up the advanced infrastructure needed for a centralized RTP system, alongside a scalable banking infrastructure and nationwide connectivity. This is also true of India where the banking infrastructure has struggled to cope with the rise in volume of UPI transactions.
Enabling interoperability. Mobile wallets face interoperability limitations. RBI has eliminated this challenge in the case of UPI and has recently issued a circular to make mobile wallets interoperable from April 2022.
Adapting to evolving regulations. Regulatory action around information security, privacy, uptime, performance etc. need to evolve at the rate at which real-time payments are evolving.
Ensuring security. Preventing fraud, securing payment gateways and terminals against phishing attacks, social engineering, malwares etc. need to be ensured.
Benefits to Businesses
Success of RTPs will depend on how quickly and efficiently a global standardization of the ecosystem is brought about. It will also depend on the kind and variety of RTP-related benefits that customers can access. We envision the following main areas of focus.
Investing in better infrastructure. RTP’s small ticket size and large volumes will put pressure on both banks’ existing infrastructure and their ability to process transactions. Banks will need to upgrade their infrastructure to support these transactions.
Integrating while there is still time. While some consumers may prefer to use cash, banks should begin to integrate with RTP systems as quickly as possible to avoid losing out to fintechs and niche merchants.
Modernizing effectively. Banks and financial institutions must modernize their platforms to enable easy API integration, the development of intuitive payment apps and more.
Solving problems of connectivity. Regulators will push for offline payments solutions to increase adoption in rural or remote areas that have connectivity constraints.
Focussing on the customer. There is plenty of opportunity to make customer experience more seamless and intuitive – end-to-end digitization of the customer journey, easy onboarding, transaction security, integration and acceptability across various customer touchpoints.
More and more consumers are choosing instant, effortless, and mobile payments solutions, where available. Delivering one at the national scale needs a keen focus on building the required robust infrastructure and enabling a seamless experience without compromising on security or privacy.
To make the much sought after benefits accessible, connecting real time payments with banks should be complemented by offline or wallet payments, and supported by protocols mitigating interoperability challenges.
(The article was co-authored by Mahima Khatri, Senior Consultant, Digital Transformation, ThoughtWorks and Vinod Sarma, Principal Consultant, ThoughtWorks)