Movie buffs may remember the immortal words of Tom Cruise—a.k.a. Maverick—as he prepared to take to the skies in Top Gun. Clearly as adept at conjuring up poetry as he was at gunning down bad guys, Tom encapsulated one of mankind’s oldest cravings beautifully when he said, “I feel the need… the need for speed!” Cue high fives all around.
Today, that age-old urge for speed is perhaps more prevalent than ever. Faster delivery, faster downloads, faster communications—we demand (and rely on) quickness in our everyday lives like never before. New innovations only feed our appetite for increased convenience, and as our expectations grow, new services emerge to keep the cycle going.
In the area of instant payments, however, our metaphorical fighter jets are still experiencing a little engine trouble.
Recent weeks saw the publication of a paper titled “Instant Payments in Europe: Practical considerations for delivering the SEPA vision.” The report considers possible paths the Single Euro Payments Area can take to achieve real-time payments processing between member states. Unlike some terminology found in the financial industry, “Instant Payments” means pretty much what it says.
As the report puts it: “People want to be able to pay who they want, when they want. Instant payments fulfill a very simple but essential requirement for consumers and business and are necessary to align financial services with the 24/7 real world.”
The report—published by VocaLink—goes on to highlight what it defines as the “absence of a strategic instant payments solution” in the Eurozone, before touching on the success of payments systems operating in countries such as the UK and Singapore (both of which VocaLink helped to build).
The UK’s Faster Payments system launched in 2008, initiating a process that technically enables near-instant payments between every bank in the region. Over 4 billion Faster Payments have been made since the system came into being, each one typically taking less than two hours to clear instead of the few days common elsewhere in the world.
More and more money is being moved by the Faster Payments system in the UK
The success of the UK model means it is often held up as the gold standard for instant payments, although it could be argued some boxes still remain unchecked. For example, an upper transaction limit of £100,000 remains in place, with many banks setting the limit much lower. This can lead to charges for both private and business customers who exceed those limits, a scenario one commentator calls “outrageous.” Moreover, the language around Faster Payments raises some questions about how instantaneous they truly are. One bank, for example, lists cut-off times for same day payments, while the official Faster Payments’ website acknowledges “some organizations only process incoming payments on working days.”
Pointing out such restrictions in the UK’s exemplary system may seem like nit-picking, but the same themes emerged in an August 2015 report by Payments UK. Polling over 2,000 UK adults, the report identified the number one desire among consumers as payments that were “completed immediately, 24 hours a day, seven days a week.” Elsewhere, the paper cites the UK’s payments infrastructure as “market leading” but notes that “as more and more new types of Payment Service Providers enter the market and we increasingly move towards a digital 24/7 world, there is widespread acceptance that changes will need to be made.”
Source: Payments UK
If there’s still work to be done for making payments genuinely instant in the UK, the United States has much further to go. A Banking Technology blog post from earlier this year claimed “nothing has happened” in the US in the past 40 years that represents real progress in pursuit of real-time payments. Interestingly, however, October brought the news that payment-systems provider The Clearing House has inked a deal with VocaLink to build a new real-time platform for the United States. Finextra commented that the move “demonstrates a sea-change in thinking among US financial institutions, which have been left behind as other countries have adapted their payments infrastructure to cater for the needs of digital consumers and businesses.”
The quest for instant payments is certainly well under way, and the main advantages are clear. Many reports on the subject also highlight the fact that instant payments will give consumers more power over not only “when” they move their money, but also “how.”
Listing the ideal traits of an instant payments system, VocaLink proposes it must be “Open to facilitate development of overlay services, without influencing them.” These “overlay” services might include payment solutions from FinTech start-ups, which will, as Payments UK puts it, ultimately “deliver a range of different innovations to ease payment processes, reduce fraud, save users money, or promote financial planning.”
For now, instant payments remain largely a work in progress, but few would argue that the sooner they become a worldwide reality, the better.