Explosive growth over the next five years will see instant payments constitute more than 30% of all transactions by 2030.
While this creates risks and challenges for banks, there are also exciting opportunities ahead.
By 2030, retail banking will more closely resemble the digital media business than the branch-based banking system we knew twenty years ago.
Our new report on instant payments covers their rapid rise as part of a broad shift to full digital banking.
In the report we explain that – while this change creates manifold challenges for banks – there are nonetheless enormous opportunities in the instant revolution.
ISO 20022: bedrock for hyper-personalisation
Banks should see the switch to instant payments as an opportunity for wider systemic modernisation that positions them at the forefront of a fully-digital future, creating better levels of customer service and more secure, faster payments – not to mention a wide range of new product opportunities.
At the heart of these new opportunities lies the switch to the ISO 20022 standard.
In Instant payments: a second revolution in digital finance? we explain how ISO 20022 messaging makes use of rich transaction and customer data.
Banks can analyse this data to simplify their fraud taxonomies and identify new products and services by examining client usage patterns for their existing products.
This could include targeting customers who travel widely with currency deals, cross-border payment products, travel insurance and other services; home improvement loans for new homeowners, or health insurance for new parents.
Banks can also use ISO 20022 transaction data to encourage client use of Account to Account (A2A) payments as these offer much lower costs for merchants and involve fewer parties in the transaction process, reducing fees for all parties.
New use cases: better service, more security
In offering such services, banks will participate in the “hyper personalisation” trend which is a key facet of the financial future, alongside faster delivery through digital channels.
As we outline in the report, however, the benefits don’t stop there – with new use cases based on instant payments such as Verification of Payee (VoP) and Request to Pay (R2P) delivering a wider range of payment options, more security and other benefits.
Launched in the UK in 2020, Request to Pay (R2P) enables companies to initiate a request for specific transactions from a consumer – again employing the ISO 20022 data standard.
Digital requests are provided to the consumer’s mobile device via a mobile banking app or third-party fintech which users can accept or reject.
Markets around the world – including the US, France, Finland, India and Australia – currently operate R2P systems, with 60% of Australian consumers[1] now using the BPAY R2P system to pay monthly recurring invoices.
The European Payments Council (EPC) released its R2P standard for the Single European Payments Area (SEPA) in June 2021, and is pushing hard for the adoption of R2P across the bloc.
With growing numbers of consumers adopting instant payments – and more people working in the “gig” economy and thus issuing invoices and receiving payments – R2P is certain to benefit both retail and SME clients in the years ahead.
Verification of Payee (VoP) is also set to be launched by the EPC by April 2025 – and a rulebook was published on 10 October 2024, outlining the standards and specifications for VoP products to be used across the EU.
Present in the UK as Confirmation of Payee since 2019, it’s now used more than one million times a day[2] in that market.
VoP helps to cut fraud and scamming by enabling payers to verify who they are paying.
In the Netherlands, SurePay has operated a VoP service for banks since 2017 which has led to an 81% drop in reported fraud and scams, and a 67% reduction in misdirected payments[3].
VoP services will also prove essential to sanctions screening as KYC rules become tighter to combat money laundering and other illegal activities.
As the second digital revolution continues, further innovations will emerge to reflect evolving customer needs.
Alongside these services, banks will be able to use their new, fully-digital systems to deliver faster, smoother and safer payment experiences using techniques such as Payment Account Tokenization (PAT) to encrypt and communicate authentication information.
Most importantly from the bank’s perspective, these new products and services will reposition them for a digital future and drive the creation of new revenue streams at a much lower overall cost than banks currently experience using legacy systems.
Learn more about new product and service opportunities in the instant payments revolution – download “Instant Payments: a second revolution in digital finance?”
[1] Answerpay, February 2022: “R2P Adoption Around the World”
[2] UK Finance, [undated] 2023, “Confirmation of Payee: the journey so far”
[3] See footnote 9 above.
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