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Instant payments and the need for standardization

November 16, 2021
By Arnaud Crouzet, VP Security & Consulting at Fime
Instant payments and the need for standardization

Instant payments are electronic payments processed in real time, with funds immediately made available to the recipient. In 2020, instant payments surged globally by 41%, demonstrating increasing demand. 

For businesses, instant payments offer the potential to reduce late payments and improve cash flow. From a consumer perspective, payments can be made or received easily and safely in seconds. For example, when paying online or transferring funds to a friend via a person-to-person payment. For the most part, however, widespread deployment of instant payments is still a work in progress with implementations at different stages in different regions. 

What do instant payments currently look like?

Spain has already embraced the technology. While cash usage has traditionally been high in Spain, digital payment methods have gained popularity over the last two years. Now daily volumes of instant payments exceed 1.5 million. Spanish consumers are turning to instant payments as a viable alternative to cash, and usage has grown ever since the launch of this technology in 2017. 

We expect to see a similar growth across the rest of Europe, where 73% of payments are still made in cash. There is a desire for this service, but there are still obstacles preventing it from gaining significant traction. Consumers and merchants are both unsure of how instant payments differ from other services such as traditional cards or Click to Pay. Education on the advantages of this payment acceptance method for both groups should therefore be a priority to encourage its adoption. 

Transaction fees, which still remain unclear, are also causing concern. Consumers and merchants could both be hit by fees to use instant payments. This may discourage businesses and consumers from adopting instant payments, or limit them to using this method for larger transactions only. This is especially true when there is the option of using card-based solutions with no consumer fees and more competitively priced merchant fees, when compared with the potential fees for instant payments. While these costs will become insignificant if volumes grow, businesses may be reluctant to invest while momentum surrounding this payment method is still growing.

Striking the balance between speed and security 

Consumers and merchants are understandably cautious about fraud, with phishing being a concern with instant payments. Customers need reassurance when using any new payment method that their money is safe, especially when it’s faster than traditional methods. The main challenge with protecting instant payments is to strike the right balance between speed and security. Card payments are a known quantity, having been tried, tested and trusted for many years. Instant payments are still in earlier stages of development by comparison.

Customers should remain vigilant about the methods that fraudsters use to try and gain access to their money. However, they must also remember that banks implement advanced anti-fraud tools to prevent fraudulent activities from taking place. As we’ve seen from its use in Spain, the risk of fraud from instant payments is no higher than for other forms of payment. Initiatives are underway to improve customer authentication, in particular for account access and other KYC procedures, to combat increased fraud via phishing. Additionally, Strong Customer Authentication is the responsibility of banks, and therefore the threat of fraud should not be a concern for merchants, who remain protected.

Use cases 

There are several ways instant payments can be used to facilitate the seamless transfer of funds. For example, they offer new methods for bill-splitting, e-commerce and cross-border transactions. Some providers allow users to make instant payments using only their mobile phone number, irrespective of the recipient bank. Request-to-Pay enables a business or individual wishing to receive a payment, to send an electronic request for that payment. Instant payments could also be used at the physical point-of-sale – providing yet another option for consumers to pick from. 

However, current use cases for instant payments are still in development, and therefore this ecosystem is not standardized. Standardized communications between the payment stakeholders involved are required to ensure an easy and quick consumer experience.

From standardization to success

It’s evident that standardization is necessary for the future of instant payments. Nonetheless, standardization should not become a barrier to innovation. The European Payments Council creates the rules for services such as instant payments, which are currently broad. The EPC needs to continue to review the regulations for instant payments and Request-to-Pay, similar to what exists now on the acceptance-to-acquirer domain for cards payments with nexo standards. 

Learn more about the importance of harmonization in payments.

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