Five things … everyone’s asking about faster payments

Cara Visser|11 July 2019
Five things … everyone’s asking about faster payments

Consumer, bank or business; near or far, technology has changed the banking game in more ways than we can count. One example is the rapid ascent of faster payments systems over the last decade.

In the not-too-distant past, banking was a robustly physical, time-consuming thing involving trips into town, standing in queues, signing checks, filling out paperwork, and then waiting, waiting, waiting for funds to clear.

Fast forward a couple of years – through the introduction of ATMs, PC home banking, floppy discs (remember those!) and early internet banking – and we find ourselves in the exhilarating age of digital and mobile banking. Convenience is king and waiting for anything these days puts a dent in our banking experience.

Now, more than ever, banks are expected to be always there, and always on, to satisfy their customers’ needs for instant gratification.

Payments in a jiffy

The arrival of faster payments is something that has payment stakeholders around the world talking. In time-honored fashion, we offer a little insight on the concept in the form of five things that everyone’s asking about faster payments.

1. What is a faster payment?

A faster payment (sometimes also referred to as an immediate payment, real-time payment or instant payment) means that inter-bank payments, made from one account to another, can be confirmed and cleared within mere seconds of initiation.

There are already upward of 40 systems around the world:

  • In the UK, for example, pay.uk’s real-time payment service, Faster Payments, has been in operation since 2008 and cites Barclays, HSBC and Lloyds Bank on its list of 24 directly connected participants.
  • RTP, the real-time payments service of the Clearing House, already connects approximately 50% of all deposit accounts in the United States after only being in existence since 2017.
  • Zelle, a pay-by-proxy system that can either be used within a supported banks’ app or via its own app to make instant payments, is reportedly gaining 100,000 customers per day and, in 2017 alone, processed $25 billion in payments.

These are not to be confused with digital wallet payment systems, like PayPal or Apple Pay, that merely send instant notifications but funds still take a day or two to clear.

2. What are the benefits?   

Immediacy is the name of the game and, with 24/7 access to payments functionality, consumers get the biggest slice of the benefit pie.

They can settle time-sensitive accounts, make last-minute payments, or seal the deal on goods purchased outside of traditional business hours. They can also access a more accurate view of their cash balances, giving legs to popular budgeting tools that, in theory, should allow users to monitor funds in real-time and plan accordingly.

With immediacy comes assurance for the recipient and the freedom to take whichever next step they need to with their funds. For a merchant or business, it means that they can approve orders on goods or services and move merchandise a lot quicker when an immediate payment gets made.

3. How are banks affected? 

Banks can benefit from faster payments too, even though the implications for them mean committing to being available at all times, with no downtime, to accommodate faster payment scenarios.

There’s opportunity for them to scrutinize, update, and automate their systems to prepare for validations, security checks and risk assessments that will need to be performed in mere milliseconds. ISO compliance is a key component to many faster payments systems, and banks can follow suit to improve their own internal processes and enable future flexibility.

It they succeed – and many already have – then they stand to meet consumer expectations, boost satisfaction levels, and offer innovative new services with the potential for additional revenue streams.

4. Who pays the price?

Nothing comes for free, and the same can be said about a faster payment. Exactly who pays is a tricky subject, though, made complicated by the different regulatory bodies that govern faster payments around the world.

In the UK, for example, the fee structure is subject to who you are. If you’re a business, then you can expect to carry the cost. If you’re an individual, however, it’s free to both send and receive a faster payment. In Germany, by contrast, a model exists that charges both the payment initiator and receiver – but there’s fine print to that, too.

South Africa presents yet another scenario, where the cost is borne by the payment initiator. While businesses can absorb these costs more easily, consumers find them prohibitively high and not worth their while, especially on smaller transactions.

5. Are there any drawbacks?  

Yes, there is one obvious, and serious, flip side to the immediacy coin: the irrevocability of a payment once it is made. This plays well into the hands of fraudsters, like merchant impersonators. Often an attacker claims to be a familiar service provider, like a public utility, and persuades their unsuspecting victims to make an immediate (faster) payment to avoid penalties.  

Unlike with traditional “wire” payments, which are routed through an automatic clearing house (ACH) and therefore have a built-in “cooling off period”, faster payments in general do not provide a mechanism for user protection in the form of recourse to dispute a transaction and then reverse it. Many banks and most faster payments providers therefore impose limits on transactions in an attempt to reduce the risks associated with people moving large amounts of money. And therein lies the opportunity…

There is a heightened need for non-deniability on the issuer side of a faster payment to make sure a bank is legally covered if, or when, a payment dispute arises. The obvious way to achieve this is by obtaining informed consent from the payment initiator. User authentication presents all the information needed to make an educated decision. 

Entersekt partners with financial institutions of all types to introduce strong customer authentication during the payment process. To find out more about our solutions or request a demo, please contact us.

About the author

Cara Visser

Cara Visser

Marketing writer and editor

Cara is a high-functioning content strategy and plain language addict whose self-proclaimed purpose in life is to fill the world with good, clean, meaningful content. She loves the challenge of simplifying and translating complex information, especially if there’s something new to learn along the way.

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