Real-time payments (RTPs) enable money transfer between two different financial institutions with a guarantee of immediate funds availability to the end recipient on a 24-hour-365-day-a-year basis.
This technology is driving growth of cashless transactions in unprecedented proportions. RTPs are critical for bringing millions of people into the digital financial ecosystem, enabling the rise in the region’s digital commerce and creating new transaction efficiencies for users.
Disruptive new digital commerce players have brought people online into their platforms by seizing upon RTPs and the advantages they offer in digital payments systems. Traditional banking industry participants continue to develop their use cases to leverage the technology.
While there are a number of logical reasons as to why the adoption of RTPs across industries is not happening at the same rate, it is time for the growth of RTP use cases in payments to accelerate.
Most RTP payments are currently peer-to-peer (P2P) or peer-to-small-and-medium-enterprise payments (P2SME). This is driving cash conversion at the lower pyramid of consumer payments. For example, 85 percent of transactions on Thailand’s real-time payments platform, PromptPay, are less than THB 5,000 (approximately $200) each, while 80 percent of India’s United Payment Interface (UPI) transactions are less than INR 1,300 (approximately $20) each. However, RTP technology can be applied across all payment categories: B2B supplier payments; B2C payments such as legal settlements, insurance claims, wages; C2B payments such as hospital bills, utility payments, and point-of-sale purchases; and domestic P2P and cross-border remittances.
For the use cases of RTPs to expand and reach their full potential in Asia, the entire ecosystem—of both established financial service players and digital newcomers—must participate in efforts to develop RTP infrastructure, improve fraud monitoring, and encourage consumer adoption.
Specifically, the following issues need to be addressed to realize the potential of RTPs:
- Regulators and policymakers across Asia must promote RTPs standardization, and coordinated policy efforts must encourage RTPs usage across a wide variety of transactions.
- Critical use cases and revenue models must be identified for all industry players—but in particular those adopted by traditional banks—to encourage broader RTPs adoption by all.
- Cost-efficient, standardized infrastructure needs to be developed, ideally on a shared or distributed basis.
- Regulators must require use of intelligence-based analytics tools that identify potential fraud, money laundering, and safety and security risks, and industry participants need to use analytics—informed by large volumes of global data on transaction context and payer demographics and behaviors—to solve for security risks.
The case for RTPs adoption
Real-time payments have been around in some form for nearly 50 years, but only now do we begin to see momentum in their use. The convergence of smart phones, the digitalization of commerce supported by large fintech investments, and the expansion of digital and financial inclusion in the region have created the perfect backdrop for this technology to proliferate.
In addition, two understated drivers are worth highlighting:
Use of proxies. The use of simple-to-recall identifiers (for example, mobile phone number, email, social identifier) as proxies to underlying bank accounts for initiating transactions has been a significant driver for the adoption of RTPs in the prevalent use cases.
For example, India, often cited as the poster child of RTPs adoption, launched its RTPs infrastructure Immediate Payment Service (IMPS) in 2010 but reached a new level with the 2016 launch of its proxy-led engagement layer, UPI. Pre-UPI, IMPS took six years to reach 30 million transactions a month; in the two-and-a-half-years post-UPI launch, IMPS and UPI together have clocked 990 million transactions—80 percent of which came from the 70 million users on UPI alone.
Broad government advocacy. Many Asian governments (India, Singapore, Japan, Malaysia, Thailand, Philippines, China, and many more) are promoting the greater use of digital payment as tools for increasing financial inclusion, growing their digital ecosystems and reducing corruption in their countries. Included in this is support for the use of real-time payments to the extent that they help accomplish these goals.
The result is that real-time payments are flourishing. For example, PromptPay of Thailand is one of the more recent success stories. The Bank of Thailand has stood behind a “cashless economy” agenda through the promotion of PromptPay, launched in 2017, which the government has used to drive new efficiencies including the disbursement of lottery system payments. In under two years, PromptPay has grown to more than 46.5 million users (65 percent of Thais) doing 4.5 transactions per day. In total, PromptPay has moved THB 4 trillion across 800 million transactions.
These use cases are encouraging proof-of-concept points for other industry players and shed light on the possibilities ahead.
Disrupting the banking industry
As Asia’s digitally savvy consumers are becoming more familiar with real-time payments, the pressure for banks to offer the service is rising.
While many banks may see RTPs as a threat that may disrupt the revenue streams of their existing transaction services, there is much for them to gain by enabling the use of the technology. RTPs drive down usage of cash and checks, two of the costliest payment types for the bank.
Banks also need not feel burdened that they have to make the investments needed to adopt RTPs entirely on their own. New players may have come to the payment space with the disintermediating bravado of tech companies but they will need to partner with banks to gain greater widespread acceptance of RTPs. Banks, in turn, can leverage new partnerships and opportunities for coopetition, and many of the leading banks are already taking this path.
Finally, banks can seize the opportunities that RTPs are creating in widening the net of financial inclusion. Google Tez, in India and PromptPay are great examples to emulate.
Barriers to progress
While many successful RTPs solutions have flourished, there remains a critical lack of a uniform comprehensive infrastructure, and alleviating this will require countries to set up their own domestic infrastructure at a significant cost—it can range from $50 million to $1 billion.
Siloed practices of most digital payments players have also not encouraged comprehensive industry-wide government regulation in the space or the appetite to foster standardization—this has led to slower progress in promoting interoperability.
The speed and ease of RTP-based systems adds to security challenges as the velocity of transactions can lead to fraud and money laundering more quickly than “slow” payment settlement systems that are coupled with more robust cyber-crime tools and practices. The introduction of fraud and anti-money laundering (AML) screening solutions needs to be simultaneous to encourage confidence and adoption across the ecosystem.
To solve for these issues and enable real-time transactions to fully materialize in Asia in a systematic, scalable, and robust manner, the entire ecosystem needs to pull together to shape this opportunity collaboratively—knowing that the potential benefits from these efforts are great.
Mastercard is committed to support RTP growth globally
Through our acquisition of Vocalink, Mastercard has embarked on a multiyear journey of sustainably providing interoperable RTPs technologies globally. We offer a comprehensive set of RTPs solutions across three product layers:
- Infrastructure: Mastercard offers the core RTP switch (called IPS) supported by a multi-identifiers proxy platform (MPP), with both built on the data-rich ISO 20022 messaging standard. The switch includes the core Credit Transfer message supported by approximately 20 other payment and nonpayment messages including “Request to Pay.” Mastercard operates its RTP infrastructure through regional payments hubs spread across multiple regions and connected to each other to enable global interoperability.
- Payment applications APIs: Our APIs enable bank apps to become payment applications without relying on the use of third-party payments apps.
- Data and analytics value-added services: We offer AML solutions and account and transaction scoring tools that assist in reducing fraud by tracking antisocial funding and suspected mule accounts.
Mastercard-Vocalink already powers the real-time central infrastructure on behalf of the Faster Payments Scheme Limited in the UK, Singapore’s FAST service to enable immediate bank transfers, and Thailand’s PromptPay scheme among others. Most recently, we’ve announced that our RTPs infrastructure and scheme service for the Philippines central bank’s real-time payments system, InstaPay, will help enable the government to realize its vision for digitalizing 20 percent of all payments by 2020.
These successes demonstrate our capabilities and how we partner to accelerate the cashless movement and drive financial inclusion and the digitalization of payments around the world.