However, speed of payment alone is not enough to drive adoption of instant payments for consumer purchases. The key to unlocking the benefits of instant payments is embracing an Open API-enabled, digital ecosystem.
Instant and Open for Digital Payments
The first movers amongst merchants will face an interesting choice around how they capitalize on their new lower costs, made possible by embracing instant payments. They may choose to simply apply this to their bottom line, but the most innovative will choose to reinvest this in customer experience for sustainable growth.
To drive the benefits of instant payments for merchants, payment providers (e.g. banks) need to enable use cases that drive consumer adoption at the Point of Sale (PoS) and in eCommerce environments. When payment providers implement instant payments, they must have available a real-time balance, and be able to use that real-time balance in other parts of the customer experience. For example, interest on loans and mortgages can be updated in real-time.
Another example is making loyalty points immediately available for redemption. In fact, with the move to instant and real-time in our everyday lives, this has become a consumer expectation, and focus groups such as Which? in the UK are well-versed in lobbying regulators to make sure the consumer reaps the benefits of this new instant and open digital age.
These use cases have been factored into the evolution of PSD2 and open banking, well beyond the point where banks simply exposed APIs to the market for account aggregation, balance enquiry, etc.
The way customer-centric instant and open use cases are being realized in the market is through digital overlay services such as Request for Payment (RfP). As consumers shop online, they are offered the chance to pay from their bank account. RfP solutions capture electronically the moment a payee (a merchant, a biller, the tax collector, etc.) sends a payment request and passes this safely and securely to a consumer’s bank, which then provides to this an enabled consumer to evaluate which of their accounts is most suitable for the payment before confirming. This lowers cost for the merchant, eases reconciliation, and gives the consumer a more secure and slick customer experience.
The key to driving adoption of this payment type will be the smooth experience, where the desire to pay instantly from their bank account doesn’t interrupt the shopping experience. The consumer no longer has to set up the merchant as a payee (like with traditional online banking), or enter information for the merchant’s reconciliation purposes. It’s as seamless as any smartphone-enabled card-based transaction is today.
RfP is not just for one-off purchases. The strength of RfP in billing scenarios means it will likely replace a section of Direct Debits, to remove cost for the biller and drive huge customer experience benefits centered around control and certainty. With RfP, the user sees the balance on their account updated in real-time, which helps them to better manage everyday finances, while at the same time offering the convenience of paying with a smartphone – especially important to today’s maturing millennial market segment.
According to market data, by 2020, 90% of smartphone users will have made a mobile payment. It’s in both merchants’ and payment providers’ best interests to capture those mobile payments by providing consumers with all the ways they like to pay, and the best possible CX. And of course, the merchant would be wise to encourage the payment method that makes most sense to them too. It’s a win-win opportunity.
The India Revolution
India is one of the most obvious examples of how these digital overlay services can create an explosion in cashless payments, as well as drive the adoption of instant payments specifically. The launch of the Unified Payments Interface (UPI) was designed to enable simple real-time payments for consumers and merchants. UPI has focused on the consumer purchases use case and solving challenges in the customer experience.
And the proof is in the pudding. Banks offering UPI services in India report that these transaction volumes are growing faster than cards, with some research predicting non-card payments such as UPI, Mobile Wallets and Rupay Cards — a domestic card payment gateway launched three years ago — to quickly account for two-thirds of the digital payments market by 2027.
UPI enables service providers, such as Paytm, to leverage UPI capabilities through banking partners. Taking this approach, Paytm has reported a seven-fold growth in the number of transactions over the last six months. Perhaps most interestingly, Paytm also reports that 50% of bill payments in India are now being made using their service.
As can be seen in the chart below, UPI has seen phenomenal growth as consumers and businesses alike latch onto the benefits of instant and open payments. UPI started with support only for P2P transactions, but put in place key capabilities like “Collect” (an RfP concept as part of the UPI 2.0 launch in September 2018). These new capabilities successfully target the needs of the merchant community.
Reports on merchant UPI transactions vary between 100 to 120 million per month, whilst other experts in the industry are seeing this rise even faster. With the likes of WhatsApp, Google Pay, PhonePe (owned by Walmart) and now the mighty Amazon all offering instant and open payments between consumers and merchants, we are going to see continued growth in these types of transactions.
India as a society seems well-positioned to capitalize on real-time payment transactions, thanks in part to the positive consumer attitudes toward new payment methods: 88% of people are willing to adopt new digital payments.
Tipping Telcos for Request for Payment
There are key industries where the benefits of RfP will be felt most strongly. Any business that has both a merchant retail arm and a billing arm has twice the potential benefit from RfP. For example, telecommunications is an industry that is ripe for RfP. From a consumer point of view, to improve the PoS and eCommerce shopping experience for smartphone handsets and accessories, and to improve the monthly billing experience.
From the telco’s merchant retail perspective, RfP drives purchase conversions and reduces cart abandonment in an eCommerce environment, as well as removing the cost of managing chargebacks from card-based purchases.
From a billing perspective, RfP enables telcos to eliminate the costs associated with failed Direct Debits and improve liquidity by receiving payments more quickly within the billing cycle. Billers can offer customers discounts, loyalty benefits and other incentives to settle their bill early via real-time payments, and still see business cost improvements.
Request for Payment Predictions in Europe
Europe is obviously ripe for RfP, in that PSD2 regulation drives the real-time payment and Open API capabilities needed to underpin these services. We’re seeing some localized services and initiatives throughout Europe, but the region is lacking the schemes and regulations needed to drive RfP capabilities. EBA Clearing recently announced a Request to Pay Task Force to support the development of a pan-European Request to Pay (R2P) solution, which is a step in the right direction.
One thing we have learned from PSD2 is that guidelines alone are not enough to encourage adoption amongst payments players. There need to be clear rules and regulations to drive uptake, and in the European market, these must be launched rapidly to discourage competitive schemes and services.
The European Central Bank looks to be applying this lesson. Its multi-stakeholder Group on E-invoice Presentment and Payment (EIPP) clearly states “the first step is the adoption of a standardized technical ISO 20022-based message for Request-to-pay and the harmonization of other identified servicing messages related to EIPP.” This includes both the functional design of the servicing message and guiding principles regarding an implementation model for those messages.
As a relatively closed ecosystem, the Dutch market should benefit from ‘fewer cooks’ and be front and center in Europe for RfP. The ‘Big Four’ have already seen success in the eCommerce market with the account-to-account service iDEAL, so an RfP overlay would capitalize on this and improve the service for both consumer and merchant.
The Evolution of Instant and Open in the UK
The UK drove its Open Banking initiative ahead of PSD2 deadlines for Open APIs, but it is also challenged by a lack of governing scheme and rules for the RfP model. There are services already live, such as Pay by Bank app, owned and operated by Vocalink, a Mastercard company, and boasting large scale partners such as Barclays, HSBC and WorldPay.
Also in the UK, UK Faster Payments (being renamed to Pay.UK) will go live with its Request to Pay (RtP) service in 2019. RtP is an interesting service in that the driving guidance is advice from the Payment Systems Regulator (PSR). Primarily targeted at the billing use case, the market will be keen to see how well the customer journey is received by consumers, so that lessons learned and best practices can be shared.
US Uptake for Request for Payment
Person-to-Person (P2P) real-time payment services have seen mass adoption in the US with Zelle and Venmo. Venmo is owned by PayPal. Zelle, by comparison, is primarily owned by the same owner banks as The Clearing House’s (TCH) Real-Time Payments (RTP). Zelle is not yet connected to these RTP rails, but it makes sense that it will be, because of the mutual business interest. When TCH launched RTP, they also launched capabilities for RfP messages, and the challenge for RTP is now driving uptake.
It will be interesting to see if Zelle capitalizes on the opportunity to design how RfP journeys will work as overlays to the RTP rails. If it is driven by Zelle, they already have the functionality to enable P2P RfP across their current user base, which encourages habit and education in the consumer domain. An obvious next step for Zelle in the US would be to offer RfP to the bill pay community, perhaps revitalizing a somewhat stagnant bank bill pay channel capability at the banks, but also a refreshed option for biller direct models.
With successes in P2P and bill pay, it’s only a matter of time for such capabilities to become attractive to merchant retailers and disrupt an historically stable and lucrative (for the banks) cards industry.
However, the crucial next step in tackling bill pay for banks and processors is not completely straightforward. Should the market back Mastercard’s Bill Pay Exchange? This is built on Mastercard’s Vocalink PayByBank app UK platform, which will ride the live TCH RTP rails and is targeting a market launch later this year. It has a proprietary set of APIs and rules that govern how the payments interactions flow and covers concepts such as liability model. Or should the market back a self-build (or consortia model – maybe with Zelle?) riding directly on top of the TCH RTP rails and leveraging that native messaging infrastructure? Or should they do both?
The differentiator for uptake and usage will ultimately be the drive to a better consumer experience. Banks, processors and indeed billers and merchants will all be casting a critical eye to ensure they adopt in a way that delivers on the benefits’ promise. Exciting times.
RfP Recommendations for Your Business
Wherever you play in the new payment ecosystem, there are opportunities for your business around RfP: lowering costs, increasing margins, attracting and retaining customers, and creating new revenue streams. The major players in enabling RfP via real-time payments and Open APIs are the banks and processors. The industry needs real-time rails, published APIs from account providers and real-time payment acquiring so that innovative players can begin to develop the front-end RfP services for consumer purchasing, and merchants can begin driving customer adoption.
From a technology perspective, there are key considerations to help organizations move forward. The baseline layer that underpins all new services is more fundamentally crucial than ever with instant and open payments. Non-Functional Requirements, such as always being available, ability to scale and ability to handle high throughput with low latency cannot slip in a real-time digital environment.
New security measures cannot impede real-time payments and should enhance the customer experience. Orchestration across existing and new services, systems, data sources and more goes hand-in-hand with security considerations. Re-inventing the wheel is expensive and can be risky, so leverage what you have and automate where possible to get ahead of the competitive curve. Orchestration solutions can support the need for flexibility enabled by newer technologies such as APIs, and third-party developer ecosystems.
Addressing technology in these layers moves an organization along the road to digital transformation and builds the necessary agility to evolve with the needs of the market. So you can be ready for all that comes your way.
ACI Low Value Real-Time Payments 
