Instant Payments Adoption: Shifting to the “New Normal”

The worldwide value of instant payments is said to reach $70.4 billion over the next five years, growing close to $200 billion by 2024. The rising demand for instant payments doesn’t just have to do with B2b transactions, the gig economy or cross-border payments. It is also coming from industries such as insurance, entertainment, restaurants and retail.

The growth in online shopping means that more and more customers require refunds on returned merchandise. Around 30% of all online purchases are returned, a rate that is three times less than that of physical purchases. Furthermore, due to eCommerce organizations like Amazon streamlining their returns process, customer expectations concerning convenience and speed have also been growing. According to the new Disbursements Tracker about 93% of organizations are unable to keep up with growing demand for instant B2C payments.

Over the last several years, customers showing a preference for debit or credit cards, cash has been falling out of favor. This has in turn, created issues for restaurant managers and workers. There are around 2.6 million individuals employed as waitstaff in the restaurant industry who are typically accustomed to receiving tips at the end of their shifts. Around half of the consumers polled in a study carried between $10 to $50 worth of cash in their  wallets. These amounts are largely reserved for tipping. Cash management solutions can help alleviate these payout issues by batching cash transactions and instantly disbursing employee tips to their prepaid cards or bank accounts filling a critical payments and cash management void.

One challenge with facilitating digital tips is that batch-based processors are integrated with other systems, thereby creating a lack of end-to-end visibility across the entire payments flow. Until the merchant or restaurant hits a button at the end of the night to batch out their daily sales, the transactions of that day are invisible. Legacy financial institutions cannot see the transactions, so they simply cannot give over the funds because they cannot ascertain what the merchant has done that day.

While traditional financial institutions seem an obvious choice for fueling the adoption of instant push payments, it is actually the insurance industry that leads the charge. The whole practice of issuing payouts is central to the industry, making them move lightning fast. To this end, companies such as gig insurance provider Verifly have emerged to fill the micro policy insurance niche created for gig workers and freelancers. The mobile-based company provides an app for users to select policies that cover liabilities for short-term assignments and projects that last up to a year.^[1]

While insurance companies are typically geared towards clients accustomed to slow claims and settlements disbursements, gig economy workers need a faster and more reliable user experience. For Verifly, this means integrating numerous payment types onto its platform such as Apple Pay and other digital wallets. Payments solution provider VPay also recently launched a claim payment service that is bringing faster disbursements to the insurance industry. The web-based, mobile-friendly tool allows consumers to review claims, approve transfers and receive funds — via check, automated clearing house (ACH) or push payment — on any device.

It isn’t just fintechs and startups that are creating products to capture market share in the gig economy. Large organizations such as American Express have been rushing to offer similar solutions to capture additional market share. The recently launched American Express Go is digital service created to help midsize and large organizations handle business expenses for temporary employees and workers without corporate cards to remove the need for a reimbursement process.

The regional outlook for instant payments adoption

The APAC region appears to be leading the adoption of instant payment transactions followed by Europe, Latin America, North America and the Middle East and Africa. Asia happens to be the only region with a volume of transactions surpassing 56 billion in 2020; both China and India are responsible for more than 70% of global instant payments volume transactions.

In certain regions, most instant payment systems are limited to domestic transactions, creating a market for companies to create financial products that offer cross-border transactions. One such company  is TIPS, a payment service that offers customers with instant payments transactions within the Eurozone. Throughout APAC, particularly countries within the ASEAN, companies are actively concentrating on the regional development of instant payments networks.

There is significant global progress in addressing and solving interoperability issues around instant payment providers. In 2021, many ASEAN countries have passed an agreement to link their instant payment platforms with one another, which helps to enable cross-border transactions. For instance, the Monetary Authority of Singapore and the Bank of Thailand linked their respective instant payment systems PayNow and PromptPay, enabling consumers to make transfers between both countries.

On a nation-wide basis, the top 10 countries in the instant payments market are:

• India
• China
• South Korea
• Thailand
• UK
• Nigeria
• Japan
• Brazil
• US
• Mexico

Conclusion

There are many reasons to make the leap to adopt instant payments in a wide variety of industries and use cases. Companies need to evaluate their overall payments strategy, including how the benefits of instant payments match the organization’s long-term goals. The future is now, so the sooner the implementation can be completed, the better.

 

^[1] Instant Payments Market Report 2022-2024 with Focus on. https://www.globenewswire.com/en/news-release/2022/04/08/2419066/28124/en/Instant-Payments-Market-Report-2022-2024-with-Focus-on-India-Brazil-United-Kingdom-United-States.html

Angela Murphy, Ph.D.
Vice President, Business Development,

Photon Commerce
Dr. Angela Murphy has experience in artificial intelligence, financial technology, and the global payments industry, building on her skills as a storyteller and rhetorician. She engages at the intersection of strategy and insight to drive results for her clients. In her current role at Photon Commerce, she helps run a team that uses artificial intelligence and machine learning to solve complex problems in the payments industry. Dr. Murphy received her Ph.D. from the University of Kansas and currently resides in Kansas City with her husband, Brock, and German Shepherd rescue, Roscoe.