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Why real-time payments will revolutionise global commerce in 2022

Why real-time payments will revolutionise global commerce in 2022

We may be witnessing the end of our 1000-year dependence on paper money. There is now a real alternative - a global infrastructure that provides a digital, real time equivalent of physical cash and it's no surprise then that this has created a great deal of excitement.

In 2020, an ACI Worldwide report found India to be the dominant player in real-time payments overtaking countries like China, South Korea, the UK, and the US. In 2020, an ACI Worldwide report found India to be the dominant player in real-time payments overtaking countries like China, South Korea, the UK, and the US.

The COVID pandemic led to a seismic shift in India's payments landscape, upending long-accepted payment behaviours. As social distancing became the norm, contactless payments and their real-time nature provided a panacea for payment issues faced by consumers.  

In 2020, an ACI Worldwide report found India to be the dominant player in real-time payments overtaking countries like China, South Korea, the UK, and the US. With 25.5 billion real-time payments transactions, India comfortably outpaced China's 15.7 billion.  

Interestingly, paper-based payments still accounted for more than sixty percent of overall payment transaction volumes, indicating the immense displacement and growth opportunity for real-time digital alternatives: and we are already witnessing that displacement; in 2021, real-time payments commanded thirty-one percent of total transactions, up from sixteen percent in 2020. 

It seems, we may be witnessing the end of our 1000-year dependence on paper money. There is now a real alternative - a global infrastructure that provides a digital, real time equivalent of physical cash and emulates the ability for people to pay for things - instantaneously. It's no surprise then that this has created a great deal of excitement. 

Presently, there is an estimated $40 trillion of narrow money in circulation globally, and even greater opportunities if we begin to redefine and redesign the way we pay and get paid. In fact, Morgan Stanley predicts the complete digitization of the Indian economy alone could be a trillion-dollar opportunity.  

As real-time payments continue to soar, spurred by the new business and consumer reality, post COVID, here are some the trends that we expect will make an impact throughout 2022 - 

Real-Time Cross-Border Payments - As more and more markets establish domestic real-time payment schemes and adopt ISO20022 standardisation, there is a growing need to extend real time across borders. There are already cross-border initiatives in place with SCT Inst and the Asian Payment Network and we have also seen countries enable cross border interoperability such as India with UAE and Singapore.  
 
This strong demand for cost effective and immediate cross-border payments, will see it emerge as a critical real-time payments trend worldwide, with all of it built around the common messaging platform for payment information, ISO20022. 

Central Banking Digital Currencies and their impact - Although CBDCs are still nascent stage, despite more than 80 countries planning to roll out their own digital currency, it will be interesting to see how they sit alongside existing payment networks.   

In some ways, CBDCs overlap with real-time payments by allowing real-time tracking, settlement, and greater visibility of payments. So, we can expect to see CBDCs complimenting the existing real-time payment infrastructure (rails).  

Real-time payment schemes can also enable CBDC payments by providing an easy and effortless experience for consumers and businesses. The ability of real-time payments to rapidly integrate and adopt any new digital currency, or form of payment technology, can also help spur further innovation.  
 
Ultimately, as CBDCs establish themselves, how existing and future legislation plays out will have the most significant impact on success and adoption. 

Explosion of form factors and frictionless payment experiences - We have seen the payment acceptance infrastructure evolve post-pandemic, and that will continue to lead payment innovation. New modes of payment will continue mainstream through 2022. 
In terms of use cases, 'Request to Pay' (R2P) will emerge as a critical real-time payments solution in 2022 and beyond. With Asia and the US already live with Request to Pay, and with the UK, EU, and Middle East planning to launch initiatives in 2022, we expect bill payments, and corporate and government collections increasingly move to Request to Pay.  

Real-time payments move from P2P to C2B and B2B - With base adoption achieved through P2P in most markets, the ecosystem will promote functional capabilities and use cases to drive C2B and B2B Payments - Request to Pay, QR Payments and Direct Debit are being enabled across most of the real-time payment markets.  

A majority of B2B payments still involve paper cheques and physical invoices, which were severely disrupted due to the pandemic. With the arrival of solutions like R2P, the transition to digital has already begun. Corporates can collect funds from other corporates using R2P - vastly improving cash flow while solving existing reconciliation challenges.  

With R2P, corporates or suppliers send a digital invoice. This request is sent through their corporate banking channel, web portal, mobile app, or other form factors. The reconciliation is then automated as the transaction ID accompanies the transaction throughout its journey. 

Increasing shift towards Payments-as-a-Service (PaaS) or Software-as-a-Service (SaaS): - COVID has forced many businesses to become much leaner and efficient and to do a lot more with a lot less. The move to digital and real time has seen banks and financial institutions (B&Is) set out to future proof their underlying payment tech infrastructure whilst simultaneously reducing Total Cost of Ownership (TCO).  
 
As they migrate to the cloud, cloud-based modernization and redesign creates the environment for huge cost savings and efficiencies combined with heightened customer services and experience. 

To begin with, cloud improves cost efficiency by reducing CapEx, avoiding high front-end or back-end costs, and increasing OpEx, allowing businesses to spread the cost across the year.  

It makes the tech infrastructure more efficient, scalable and flexible, enabling them to innovate, introduce and then scale new digital capabilities and services much faster, without having to manage complex infrastructure. 

Operating via the cloud also ensures higher security and fault tolerance against any system failure or overload (as well as resilience during natural disasters affecting physical assets). Finally, it greatly enhances corporate and regulatory compliances by reducing the impact created by fragmented schemes and industry mandates.   

From a longer-term perspective, consumers have finally begun to understand the true potential of digitisation. According to National Payments Corp of India (NPCI) data, in April 2020, the first month of lockdown, UPI recorded 999 million transactions worth Rs 1.51 lakh crore. As of November 2021, that number had reached 4.2 billion in terms of volume with transactions worth nearly Rs 7.68 lakh crore.  

If we couple that with internet and smartphone penetration beyond the urban metropolitan areas,  the growth potential becomes staggering.   

It has become clear that consumers will no longer accept a fragmented payment experience. They demand a more integrated experience, one that is consistent across channels, whether it's online shopping or in-store payments, and consistent across form factors, whether by mobile device, tablet or web. 

Of course, there is still a long way to go before cash is no longer the favoured way to pay and be paid. But we have seen a generational leap towards real-time payments in under two years.  

The momentum is now with digital payments. As CBDCs come online, as the cost of cash becomes ever more apparent, and as governments too, demand greater efficiencies and resource management, the pressure on cash from above and below will accelerate that shift. 

Cash still has life left in it - but there is now no doubt, the future of global commerce and consumerism is digital real-time payments. 

Views are personal. The author is Global Solutions Lead, Real Time Payments, ACI Worldwide.