Q. Where and how are real-time payments and open banking services emerging?
LL: Asia is a good example of how banks can create revenues in acquiring additional payment types for their business customers. There’s also interest in Europe to use PSD2-like services to do this. In China and Japan, there are lots of non-bank-issued cards, Alternative Payment Methods (APMs), mobile wallets and more. It’s an important trend to monitor. It remains to be seen as to what degree real-time payments and open banking are a threat to the franchise of cards in terms of Point of Sale (POS) transactions, especially when we consider markets like Europe and North America. Merchants are interested in the potential, but banks are not as sure about investing in the services.
CR: Banks will move to protect revenues. Exactly what that move is will be partly determined by the current business structure of the bank. If the team responsible for real-time payments is siloed from the cards team, along the traditional retail payments versus transaction banking lines of business, you may see the banks first move against real-time and open payments in the corporate services space.
LL: The delineation of these lines of business varies by region too. For example, card issuing generally forms part of the retail bank in Europe, but in North America, it is often its own division. This means we will see further diversification in real-time and open payments services, as banks create targeted services that meet customer demand and fit their own business models.
Q. Which models will be successful in moving transactions away from cards to other payment systems?
CR: Real-time and open payments services that provide a better customer experience than the current offering will be successful in creating a tangible shift in the balance of transaction volumes across the channels. Banks and other payments players will move against the demand of their customer base. Currently there’s work to be done around the specific types of consumer purchase scenarios where a real-time payment would deliver a better customer experience (CX) than a credit card. Especially when we consider that in combination with overlay services like Request for Payment. The scenarios will be impacted by the channel, the type of purchase, the average transaction value; the CX benefit analysis in an ecommerce scenario can be attributed against elements such as the immediate dispatch of goods based on real-time funds. In a bricks and mortar store, the vertical matters: in a low-value, rapid-fire transaction like a coffee purchase, contactless card payments are well suited to the use case and a Request for Payment may not enhance the CX. But it could for the purchase of an electronic item: the richer data format of real-time payments could be used in the merchant systems to link the transaction data and warranty purchased, and smooth the CX over the lifecycle of the customer relationship when they return to enact the terms and conditions.
LL: The end customer doesn’t care about the payment rails, they care about ease of use and the benefits to their lifestyle. Use cases may mimic the functionality of card payments with something the customer already has, like a smart device, and offer a benefit like increased loyalty points.
Q. How can real-time payments be leveraged by merchants to drive value for their customers?
CR: Merchants can choose to pass on some of their new-found margin to their customers. Even in the US, interchange fees are still huge, meaning lower cost payment alternatives create the potential for merchants to create huge cost savings, and share a percentage of that with customers. It’s likely they will choose to do this through loyalty and rewards rather than discounting.
LL: The only way for merchants to achieve this is by using open banking interfaces. It needs to be a standardized API to allow merchants to integrate to a single API. Merchants are focused on the user experience of their app or website, and the overall CX. It doesn’t improve their service to connect to various APIs, it just complicates the business case, especially in a low interchange environment like the European Union. For the business case to stack up, the implementation has to be at least as simple as it is for cards, and ideally more so.
CR: For online merchants, the business case is different; the need to accept all payment types is clear: if the preferred method is not available, customers simply search for another merchant, so merchants must offer all ways to pay. But online merchants also have more time to work with customers during the transaction, plus the customer provides more details. As consumers, we often repeat purchase with online merchants and store pre-registered details in our customer accounts. In these transactions, a real-time payment combined with the right overlay service is probably already a CX improvement compared to cards. Merchant websites could broadcast dynamic QR codes to be read by smartphones and used to provide the right details for a push payment. These would include the destination account details and information for reconciliation purposes. It would negate the need to store customer card details with merchants, and provide CX and security benefits for both parties.
Q. How can banks support their merchants to capitalize on the real-time payments opportunity?
CR: When we look across Europe, the offline merchant experience is less standardized from a consumer point of view. The payment methods accepted vary by merchant size, type and location. Banks could be the ones to add value here. Real-time payments can be integrated into innovative offers pushed through apps. It’s one method of driving consumers to spend in different ways, including in brick and mortar stores. They also lend themselves well to small and independent businesses that prioritize cashflow. Real-time payments could save high streets and mom-and-pop shops by removing cost for the merchants, accelerating merchant settlement for improved cashflow, and increasing footfall via digitally-enabled customer offers.
LL: Ultimately the payment is incidental to the merchant-consumer interaction; it becomes invisible and embedded inside entirely different processes, wrapped with other features. This is the lesson banks need to learn. People aren’t out there to shop for payments: they want coffee, books, and anything else you can order online. That order needs to be painless, seamless and transparent, including the payment, to enable your merchants to sell regardless of the consumer’s payment method preference.
ACI Low Value Real-Time Payments 
