What are instant payments?
Instant payment is a new way to exchange money and purchase services in seconds. Compared with wire transfers, they allow the transfer of money from the payer bank account to the payee bank account almost immediately, instead of requiring few business days.
These payment systems have been developed (and are currently under development) worldwide as the need of faster and reliable transaction is the new economy common requirement. In countries like China, Japan and India, some type of these systems have existed for several years, while Europe and the U.S. had RTP systems introduced in 2018.
Below is the map of instant payments adoption on a global scale.
The Euro Retail Payments Board (ERPB) has provided a widely accepted definition of instant payments: “electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation).”
Traditional electronic payments like wire transfers that perform the electronic funds transfer within few business days, are not anymore in line with user expectations.
Types of payment systems
From its narrower implementation in 2018, instant payments are spreading its reach in 2019. Especially since the introduction of PSD2 or Open Banking in Europe, new payment methods and schemes are being generated which will replace card payments in the long run.
As banks adopt real-time payments in economies such as Australia, Europe and the US, new capabilities will emerge to operate in real time. Examples will include corporate cash management solutions for real-time cross-border payments, virtual accounts and fraud innovation. Each country develops its own real-time payments system and often these have their own brand names such as Faster Payments in the UK, FAST in Singapore, NPP in Australia, Express Elixir in Poland, Straksclearingen in Denmark, Swish in Sweden.
The Eurosystem has decided to develop a new service for the settlement of instant payments. The TARGET instant payment settlement (TIPS) service will enable payment service providers to offer fund transfers in real time and around the clock, 365 days a year.
There are also instant cross border payment systems. One example of such system is the Saudi British Bank which piloted Ripple tech for instant cross-border payments. The Saudi British Bank, Saudi Arabia’s third-largest bank, announced that its Ripple-based cross-border instant payments pilot is live
Do faster payments mean faster fraud?
Mark Wallin, Fiserv’s Senior Vice President of Risk and Fraud Management in the Electronic Payments Division gave his opinion in an interview for www.pymnts.com whether rtp systems will bring more fraud.
He said that fraudsters are, as in every case of new payment systems, looking for weaknesses that they can exploit. They are especially drawn to real-time payments because they are often irrevocable — human reviews are reduced, and they can quickly capture funds and move them elsewhere. The key to stopping real-time payment fraud is real-time mitigation of potentially fraudulent transactions.
Wallin advises companies to
- invest in decision tools. Real-time fraud detection and decisioning is paramount, since transactions are completed quickly, eliminating the luxury of manual reviews
- ensure fraud strategy spans all customer touchpoints
- have multiple layers of security, so that if a fraudster gets past one layer, there are still additional checkpoints
Faster payments may attract faster fraud, but financial institutions can preserve user confidence and manage fraud by deploying real- time, layered security controls in their payment processes.
Examples of instant payment system
One of the most recent examples of RTP system implementation is Bankart and Nets in Slovenia. Later this month, Slovenian payments processing company Bankart is expected to release an instant settlement solution from Nets, a European payments, card and information services provider. Bankart recently received final approval from the Bank of Slovenia — the country’s central bank — to deploy the solution, which uses Nets’ RealTime24/7 instant payments platform and supports interbank transactions that clear in less than a second. Bankart will also use the platform to process regular credit transfers, including bill payments, salary disbursements and pensions. This builds on previous work from Nets, which provided instant payments schemes to Italy and Denmark. Hungary will also go live with a Nets system later this year.
When it comes to cross-border payments, the Saudi British Bank piloted Ripple tech. The bank stated that it is among just three in the country that have received the central bank’s approval to test Ripple’s technology. Although the bank did not say whether it would use Ripple’s xCurrent or xRapid solutions, its head of global liquidity and cash management, Ghada Al Jarbou, said the goal is to provide cheaper, faster cross-border payments for corporate clients. Saudi British Bank’s adoption of the technology comes in the midst of Ripple’s ongoing Middle East expansion. According to Dilip Rao, Ripple’s global head of infrastructure innovation, the firm already has deals with two other Saudi banks, two in Kuwait, one in Bahrain, one in Oman and several in the United Arab Emirates.