Real-time Payments: The Time to Act is NowBy Leslie Choo
Around the world, people now expect real-time experiences in everything they do, and payments are no exception.
Whilst payments themselves are increasingly commoditized, the faster movement of money has been at the forefront of enabling this digital acceleration. Ultimately, consumer expectations are definitively trending towards new services and experiences layered on top of real-time payments, as explored in the 2022 Prime Time for Real-Time report, with 427.7 billion real-time transactions expected globally by 2026.
The evidence is clear: real-time payments improve overall market efficiencies and boost economic growth by allowing for the transfer of money between parties within seconds rather than days. As real-time payments continue to grow and thrive, it’s essential for financial institutions to act decisively to leverage this great opportunity.
Central mandates make the difference
The difference in terms of how far and how fast new use cases have taken hold is the work done in the previous years and decades by governments, regulators and central banks to stand up national real-time payment schemes. Another critical but secondary factor is the environment created by those bodies for Big Tech involvement and the impact this increased competition has on incumbent banks and payment service providers.
Government or central intervention takes many forms. Some regulators are hands-on and set aggressive timelines with real consequences for non-compliance. Others take a consensus-driven, collaborative and gradual approach. In the ASEAN region, governments have also turned to real-time payments as a lever for improving economic prosperity and financial inclusion. And, given the success of real-time payments in unlocking meaningful impacts on GDP, they will continue to do so.
Data from the Centre for Economic and Business Research compiled exclusively for this year’s Prime Time for Real-Time report shows that by 2026, an additional USD$16 billion in GDP output is expected to be facilitated by real-time payments across the ASEAN’s real-time markets - Malaysia, Indonesia, Philippines, Singapore, and Thailand. Despite the lack of forecast in Vietnam for 2026, the country’s economic growth story has been nothing short of a miracle due to favorable global trends and there remains significant potential for the benefits of real-time payments to facilitate further economic prosperity.
The Prime Time for Real-Time report provides further evidence that services tend to be most robust, and adoption highest, where clear and strong government or central mandates exist. This is the first of three grand themes that are emerging as the world goes real time.
Digital services are the next step in the maturation of real-time payments
Regardless of how they get there, where real-time payments take hold, we also see participants across the payments value chain eager to engage with the new scheme. But the real action happens in the middle, between the traditional bank accounts bookending transactions. Here, society’s sudden and seismic digitization has stimulated dramatic growth, with an explosion of real-time enabled, digital payment experiences launched by new market entrants or traditional players.
This is the next chapter of real-time payments’ maturation and the second grand theme in the arc of real-time development. As living and working converge onto digital experiences, offering real-time payments is becoming more than enabling new ways of paying. It is about embedding payments within these experiences in order to enhance those journeys, improve their convenience and increase their value.
Cloud: The great enabler
The third and final grand theme is the cloud. By flipping traditional infrastructure procurement on its head and standardizing related operational and security capabilities, the cloud is inexorably reshaping the payments market. By freeing up organizations to focus their expertise and energies on developing added-value payment features and functions on top of these standardizations, it dramatically accelerates time to market on new use cases. The unrivaled abilities of hyperscale cloud providers to manage and scale data security and privacy requirements transform the fight against real-time payments fraud. And those same capabilities advance the industry’s maturity when it comes to using data to improve the customer experience.
As greater security increases trust, and better data leads to more relevant use cases, the flywheel of real-time payments adoption and innovation will develop a self-sustaining momentum. The pace of change will only accelerate. For a window on what this future looks like, we can look to India, where UPI (Unified Payments Interface) processes more than 5 billion transactions per month and is already launching its third generation just six years since the first. Wildly successful adoption has seen use cases extend far beyond sending and receiving funds, to loans and credit checking, cardless cash withdrawals and growing regional cross-border interoperability.
Payments must become cloud first and data centric
Many banks are seeing the introduction of various real-time payment schemes as an opportunity to modernize their architecture. Whilst it might be possible to layer new schemes on top of old architecture, that would increase complexity and do nothing for agility. Banks are instead migrating toward more flexible and lower-cost servers, moving towards more open architectures and to cloud technologies (if not to the cloud itself.
As other industries have already shown, it is increasingly clear that banks and financial institutions with designs on winning with payments in the digital real-time economy need to be cloud first and data centric. With these ingredients in place, banks can truly leverage the unique innovation opportunities provided by real-time payments.