Unlocking the potential of Instant Payments

To address the slow pace of adoption, the European Union has mandated the Instant Payments Regulation (IPR) which requires all payment service providers (PSPs) operating within the EU to comply with the following deadlines:

The mandate aims to standardize and accelerate the adoption of SEPA Instant Credit Transfer across the EU.

So what’s prevented Instant Payments from being used more widely so far, and how can banks integrate Instant Payments into their offering?

If payment providers want to use Instant Payments as a backend platform for point of sale, e-commerce, and other similar transactions, charging the customer will hinder the rate of adoption. Yet, this is what many providers are doing and the extra cost is acting as a financial disincentive, resulting in customers sticking with the slower but free (or cheaper) transfer methods they’re used to - in India, a survey showed that 73% of consumers would stop using the free (up to a limit) UPI Instant Payments system for personal transfers if fees were to be charged.

Banks may have the opportunity to bypass card processing fees with Instant Payments, but this needs to be accompanied with lower fees to encourage adoption, as demonstrated by the rapid uptake of Pix in Brazil (charging 0.22% per transaction vs up to 2.2% for credit cards). Instead of charging customers more to use Instant Payments, payment providers should focus on enabling a seamless, cost-effective experience that encourages customers to embrace this superior technology. As well as improving the customer experience, this will also increase the familiarity and wider adoption of Instant Payments.

Although this approach may leave Instant Payments with less opportunity to generate profit in the retail sector, there’s plenty of opportunity in the B2B sector. Businesses greatly value higher-speed transactions, since this improves cash flow and allows more funds to be available at any one time. And they appreciate the 24/7 consistency that Instant Payments provides. Banks and payment providers can therefore capitalise on this value proposition by developing targeted solutions for industries that rely on quick, consistent payments, such as travel and tourism, where Instant Payments can be used to settle transactions more quickly than today’s virtual cards. This service can be further enhanced by additional offerings, such as priority processing, extra layers of security and detailed reporting analytics.

Instant Payments presents new challenges for fraud prevention due to its speed and finality. To address this, the EU’s upcoming Instant Payments Regulation (IPR) includes a requirement for banks to verify the accuracy of IBAN and account holder names before processing transactions. The three-level result system (Match, Close Match and No Match) aims to protect both consumers and businesses from fraudulent transfers.

Unlike traditional card payments, Instant Payments also doesn’t offer a chargeback dispute protection system. Without it, consumers and businesses are at risk of losing significant amounts of money due to fraud. As well as being damaging for the individual or business concerned, it can be potentially damaging for the system itself should the news be shared by the wider media. And this could severely damage consumer confidence in Instant Payments. So when building or integrating this technology, banks should consider many of the protections currently offered by card payments, such as fraud prevention measures, instant risk prevention, authorisation and settlement processes.

It’s therefore essential for banks to incorporate extra processes and policies to protect consumers and businesses. For example, this could involve validating transaction data before releasing funds - a particularly important measure since Instant Payments can increase the risk of erroneous transactions and money laundering. It might also involve adding authentication methods such as biometrics for both sender and recipient, or implementing transaction limits and monitoring systems to detect and prevent suspicious activities in real-time.

As we’ve seen, banks looking to incorporate Instant Payments must consider a number of factors to ensure a successful transition before the EU’s Instant Payments Regulation deadlines. This includes fraud protection, instant risk prevention, authorization, settlement, consumer and business protection processes and policies. But doing so can be complex and challenging, including managing instant risk, anti-money laundering, reconciliation, integration and new processes across the bank’s entire value chain.

To find out more about how Netcetera could help your bank leverage the power of Instant Payments, get in touch, or read more about our Mobile Wallet, a highly customizable and secure product that enables banks to offer their customers a leading payment experience, with features such as Payment Cards Management and crucially for Instant Payments, P2P Payments.