March 11, 2019
The worldwide adoption of ‘fast payments’ or ‘real-time payment’ systems started to draw attention in the early 2000s due to its value proposition of quicker and continuous service availability for low-value transactions. A real-time payment system is defined as an instantaneous, irrevocable, continuously available system which can facilitate higher volumes of transactions at fraction of the cost for end-user. South Korea’s electronic banking system became the first one to launch fast payments in 2001, followed by Chinese Taipei, Iceland, Malaysia, and South Africa over the next five years. None of these is a major/developed economy. The UK became the first advanced economy to launch faster payments systems in 2008. Two of the largest countries in the world – China (IBPS) and India (IMPS) adopted real-time payment systems in 2010 and the number of countries has continued to grow since then. One should not be confused by Japan’s Zengin system that was (launched in 1973) originally an RTGS system but has evolved its functionality over six generations of advancements and now aims for a truly real-time system.
After 18 years of mainstream introduction, Australia, the US, Saudi Arabia, Hong Kong, Hungary, and the Netherlands are still trying to catch-up with the implementation of real-time payment systems. By 2018, ~40 countries had RTP systems in place, indicating a rate of RTP adoption slower than what RTGS witnessed. However, big dogs are catching up fast and in 2017–18 alone, around 15 RTP programs were put in development/implementation pipelines.
Increasing customer expectations to settle transactions at the speed of sharing a message on social media and avoid transaction fees
Merchants’ desire to reduce transaction frauds, receive funds fast, and improve their use of cash flow
Increasing globalization that demands the presence of gateways across countries
Diffusion of advancements in technology that make smartphones, internet, biometrics, and P2P payments, and payments linked with social apps are a convenience for end-users
The growth of m-commerce, which is estimated to account for nearly three-fourths of total e-commerce by 2021
Despite initial hiccups in RTP implementations in major economies, we have witnessed stellar performers such as IBPS (China), IMPS (India), SITRAF (Brazil), SPEI (Mexico), FAST (Singapore), and Faster Payments (UK) that can be the models for new markets. In 2018, India’s IMPS recorded over 1.5 billion transactions at a YoY growth of 52%. For the period of 2013–2017, IMPS was one of the fastest-growing real-time payments systems with a CAGR of 185%. For the same period, the value of IMPS transactions grew at a CAGR of 203% through to $137 billion in 2017.
The UK, a leading FinTech breeding ground, recorded over 2 billion Faster Payment transactions in 2018 at YoY growth of 23%, which was a welcome improvement to the cumulative growth rate for 2013–2017. For the period of 2013–2017, Faster Payments grew at CAGR of 14%. China’s IBPS remained the biggest gun with ~8.5 billion transactions in 2017 and grew at CAGR of 105% during 2013–2017. India’s UPI, which is based on the IMPS system, recorded 790% in YoY growth in 2017–2018 and clocked over 3.7 billion transactions in 2018.
China’s IBPS and India’s UPI model (based on IMPS system) are two of the most successful systems where the state (or consortium of banks) has built a universal infrastructure that powers payments across both sides of the industry – banks and compliant third-parties. Both payment systems are highly successful because they allow participation from non-banking entities as well. On the other hand, the US flaunts its huge payments ecosystem including tech wallets, network wallets, bank wallets, FinTechs, and multiple merchant wallets but suffers from fragmentation coupled with lack of interoperability.
The transaction volume of UPI + IMPS increased from 1.4 billion in 2017 to 5.2 billion in 2018. The fifth annual ‘Flavors of Fast Report 2018’ (by FIS) recognized IMPS as the top RTP system in the world on the basis of system’s standards, published API, and participation from third-party vendors. IMPS was followed by Singapore’s FAST, Australia’s recently launched NPP, Denmark’s NEST, Poland’s ELIXIR, and Finland’s Siirto. It would be interesting to see how some of the new systems from the US, Australia, Hong Kong, and others pick up the momentum in the next couple of years and perform against their peers.