What are instant payments?
Instant payments are a payment method that allows the sender to send funds to a recipient's account in real time. Instant payment services are available 24 hours a day throughout the year, including public holidays and weekends.
1. What are faster payments?
Instant payments are also known as faster payments in the UK. Launched on May 27, 2008, the Faster Payments Service (FPS) is a banking initiative to reduce the time customers need to move funds between accounts to seconds from three business days previously. A service with the same name was launched in Hong Kong on September 17, 2018.
2. What are real-time payments?
Real-time payments are another name for instant payments, mainly used in the US. A transaction using instant/faster/real-time payment services usually takes less than 10 seconds from start to finish.
3. Instant payments globally
Instant payment services are available in virtually all major countries. Two examples are mentioned above, namely the FPS in the UK and its namesake in Hong Kong.
On February 9, 2015, Polski Standard Płatności (Polish Payment Standard) launchedBlik, allowing people in the country to make instant payments through the app. By the end ofQ3 2022, Blik had 12 million active users and recorded 324 million transactions in three months, an average of 3.5 million daily operations or a 67 percent year-on-year increase.
Six major Swedish banks launched Swish in 2012. Ten years later, on June 17, Swish had eight million users, or 77 percent of Sweden's population. In India, the Immediate Payment Service began operating in 2010, and theUnified Payments Interface (UPI) was implemented in 2016.
How does instant pay work?
1. Instant payments requirements
The European Central Bank requires an instant payment ecosystem to comprise four layers – the end-user solution, scheme, clearing, and settlement layers. The first layer calls for cooperation and competition with other service providers. The second layer concerns the system that makes instant payment available. The third deals with the scheme used to execute the clearing of transactions between service providers. The fourth concerns the scheme that arranges transaction settlements between service providers.
On the operational level, an instant payment process requires a recipient, a sender, and their respective banks. The parties will be involved in five steps – initiation, authorisation, transmission, acceptance, and receipt. First, the sender connects with the system provided by their bank to set up a payment. Once the sender initiates the request, the bank will take the funds and push them to the recipient's bank. The receiving bank then validates the message and informs the recipient. Once the receiving bank confirms the transaction, it notifies the sending bank through the underlying system and puts the money in the recipient's account. Finally, both banks notify the sender and recipient about the transaction. This sequence does not take not hours or minutes to complete but seconds.
2. Do instant payments charge a fee?
The European Commission on October 10, 2022, announced that it had issued a draft regulation that would force all banks to offer instant payments in euros for free. The announcement came amid the energy and cost-of-living crises on the continent. Until then, instant payments charged fees of up to £26 in the European Union.
As of August 2022, there were 40 institutions offering the FPS in the UK. The service is free for personal use. For corporates, the charges range from £2.50 per payment to £5 per line, with a limit of £250,000 per transaction.
3. Instant payments regulation
In the EU, instant payments areregulated by the European Commission, and payments within the Single Euro Payments Area (SEPA) are managed by the European Payment Council (EPC). Most transfers in the region comply with the rules set under SEPA payment schemes. The EPC represents payment service providers on the continent to harmonise payments in the region. The council oversees more than 46 billion transactions every year. The EPC was not established by the EU but by banks in 2002 in answer to the bloc's call for harmonised electronic payment systems.
Instant payments are regulated by the Payment Systems Regulator (PSR) in the UK. The PSR currently regulates eight payment systems –Bacs,CHAPS,Cheque & Credit,FPS,LINK,Mastercard,Visa Europe, andthe Sterling Fnality Payment System. These previously included The Belfast Bankers' Clearing Company (Northern Ireland Cheque Clearing).
Instant payments growth
Based on data released by GlobalData on February 15, 2022, there were 70.4 billion instant payment transactions worldwide in 2020 alone. Experts at GlobalData believe the industry will expand at a compound annual growth rate of over 30 percent by 2024. India is the country with the fastest rate of instant payment adoption among its citizens. Its UPI is now also available in Bhutan, Nepal, Malaysia, Singapore, the United Arab Emirates, France, Oman, and the EU. Hosting approximately six billion monthly transactions, it provides services to over 300 registered banks and almost 260 million users.
On April 8, the Association of Southeast Asian Nations (ASEAN) announced plans to connect all instant payment platforms in countries in the region to improve cross-border transactions between them. Several ASEAN members in 2021 signed an agreement to link their instant payment platforms to allow real-time cross-border fund transfers. Digital wallets are a prominent instant payment method of choice in the region. Payments using e-wallets account for 31 percent of e-commerce transactions in the Philippines, 39 percent in Indonesia, and 25 percent in Vietnam.
The Asia-Pacific region in general is ahead of Europe, Latin America, North America, and the Middle East and Africa in terms of instant payment adoption. In 2020, the number of instant payment instances surpassed 56 billion, with China and India, the world's most populous countries, accounting for 70 percent of global instant payments. After India and China, the top markets in the industry are South Korea, Thailand, the UK, Nigeria, Japan, Brazil, the US, and Mexico.
In many countries, the rise of instant paymentsoccurred during the coronavirus pandemic as customer preferences shifted from cash to cashless payments. In Brazil, the use of cash declined by 26 percent in 2020, 8 percent in the UK, and 24 percent in the US. Based on data released by the Central Bank of Brazil in 2022, the country's Pix instant payment platform had 122 million users and 775 registered participating institutions while recording two billion monthly transactions in only two years since its launch.
Instant payment benefits
1. Key benefits for customers
Other than making transactions more efficient, instant/faster/real-time payments offer flexibility for individual users as they can move funds instantly as opposed to the traditional three business days. Instant payments allow customers to make emergency payments that would not be possible with conventional bank transfers, allowing them to avoid late fees, account overdrafts, and credit score damages.
2. Key benefits for businesses and governments
For businesses and governments, instant payments can help improve cash flow. As funds arrive instantly in the recipient's account, merchants and government bodies can be more flexible and precise in managing their cash flow. Instant payments also boost efficiency. As they are digitalized, real-time payment systems eliminate the need to manage paper money, including counting and storage. Instant payments also help to attract more customers, both in person and online.
Comparisons
1. Instant payments vs real-time payments
Real-time payments are another name for instant payments, mainly used in the US.
2. Faster payments vs instant payments
Faster payments are another name for instant payments, mainly used in the UK.
FAQs
1. Are instant payments available on weekends?
Yes, instant/faster/real-time payment services are available 24 hours a day, seven days a week, and 365 days a year, including during public holidays and weekends.
2. How long does it take to make an instant payment?
Instant/faster/real-time payments usually take less than 10 seconds from start to finish, with rare two-hour delays at most in the UK. Mistakes and incorrect recipient or sender data are among the factors that can delay the process.
