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Abstract
With immediate payments initiatives gaining pace worldwide, banks have been focusing on building and implementing immediate payment solutions to comply with the regulatory requirements of regions they operate in. However, once the enhanced infrastructure and processing capability of immediate payments are in place, banks can explore further options to create new revenue streams and realize return on investments made in these systems. This can be achieved by designing and offering new payments services, finding better ways for competing with conventional and non-conventional payments players, and increasing the retail and corporate customer base by covering newer payments scenarios.
Introduction
Adoption of immediate payments is probably the most important trend in the payments industry today. The speed with which immediate payments are being adopted varies in different countries. However, regulators all over the world are putting equal emphasis on rolling out these schemes at the earliest. Immediate payments are providing both bank and non-bank payment service providers an opportunity to offer various payments and related value-added services to their customers. Scheme regulators, banks, and other scheme participants are building solutions using technological and functional advancements, not only to make payments easier, faster, convenient, and more secured, but also to support newer methods of making payments covering a lot of new business use cases. The impact of this advancement on personal, business, merchant, and government payments is changing the market landscape faster than ever before.
Adoption of immediate payments across the globe
‘Real-time payments’ has been around for quite some time now. Though started in the early 80s, it gained momentum in the last two decades with its coverage spread across all the geographies. Leading economies like the United States, Australia, Canada, and the European regions are also in the process of evaluating/implementing instant payment solutions. Figure 1 shows immediate payments rollouts in different countries.
Benefits of adopting 'immediate payments'
Beginning of a new journey with 'immediate payments'
Compliance with scheme guidelines is only the first step for all banks participating in any immediate payments scheme. In light of these new generation payments schemes, banks are now forced to redefine their long-term payments strategy considering the following points:
While defining long-term payments, strategy banks may follow a three-step approach as shown in figure 2.
Primary objectives
The primary objective for any bank participating in immediate payments scheme is to provide its customers a ubiquitous, efficient, fast, and safe option to avail payment services. Apart from early adopters (usually the big banks), most of the banks participate in the scheme, primarily to comply with the regulatory changes.
During initial stages of implementation, banks may partially achieve these goals and keep building on the remaining aspects during subsequent phases.
The following details the five objectives:
1. Ubiquity
2. Efficiency
3. Safety and Security
4. Speed
5. Legal and Governance
Makeshift objectives
Banks can focus on specific areas under primary objectives in order to build new service offerings of their customers. These second-level or 'makeshift' objectives also include banks' participation in optional value-added services, which they can offer to their customers at additional costs.
1. Standardization
Standardization with common messaging formats, shared message validations and predefined processing steps is a key towards unifying various payments. For any bank, streamlined and regularized workflows ensure flexibility of system(s) for future changes and reduced 'go-to-market' time for new offerings. Standardization of processes across payment types also reduces the redundancy of static/reference data maintenance in the system and operational processes.
Standardization is important, even for the scheme designers or regulators since it lowers the barriers to entry, unlocks competition, and in turn promotes innovation. Even the small players can offer payments services to their customers with standardized formats, processes, protocols, and workflows. This is very important, especially in payments, since the space until now, had been dominated by a handful of large service providers (banks), thus giving limited options, lesser transparency, and higher costs to the end users.
2. Interoperability
The next step of standardization is interoperability where standard message formats, common payment attributes, and use of unique references throughout the message life cycle enable banks to switch from one domestic payments scheme to another with minimum or no switchover time.
Though the growth of immediate payments and the pace with which they are replacing the other payment types is not similar in different countries(1), eventually all payments are going to be processed real time. Most of the banks, therefore, are laying down a sound foundation for an interoperable payments ecosystem that has already started with implementation of immediate payments.
3. Support services
As a part of new industry initiatives, regulators are demanding that payments players offer different services to end users. Under these services, the established players (especially the banks) may be required to share a part of their information with other scheme participants. Though established banks do not have a choice over sharing these details, they can still decide whether to extend their services beyond the minimum mandatory requirement set by the scheme. This could then be an additional service offering, leveraging the unescapable regulatory requirement. For example, PSD2 in Europe mandates banks to share a part of account information (account details, balance data, account identity verification) with account information service providers (AISPs). However, the banks can share additional data with customer consent (e.g., nonpayment accounts, demographics, preferences, KYC details, and direct debit mandates) with the third parties to create new product and service offerings. Such support services can provide banks an opportunity to get additional revenue by sharing details with other players.
4. Value-added services
Most of the new scheme designers encourage individual scheme participants and their communities to offer value-added services to their customers. These services, though based on the core payment schemes, are normally a matter for participants and their customers in the competitive space. Participants use the existing payments / scheme infrastructure to cover more business scenarios and offer additional services to the end customers. Under these services, participants exchange additional payments details, perform specific validations, and encourage automatic matching and reconciliation of auxiliary payments data.
Under all such initiatives, participants have to subscribe with the regulator for services that they offer to their customers. AOS in SEPA or Overlay Services in Australia NPP are some examples of value-added services.
Since these services are offered at an additional cost, they can provide banks an opportunity to create additional revenue. They can also help in capturing more contextual details and performing automatic matching and reconciliation in case of business-to-business (B2B) payments.
(1) As per SWIFT white paper on 'The Global Adoption of Real-Time Retail Payments Systems (RT-RPS)', the speed and success of adoption of immediate payments varies significantly from country to country. Though the United Kingdom, South Korea, Taiwan, Switzerland, and Japan are on a typical adoption plan, countries like Poland, India, South Africa, and Brazil are moving at a much slower pace. Countries like Chile and Mexico are on the rapid adoption path where majority of their CT and DD payments are migrated within a decade.
Strategic objectives
Once the immediate payments foundation is laid, banks can design and offer new services to their customers using the same infrastructure. With new modes of payments initiation and new business scenarios evolving every day, banks can leverage their payments systems to support newer type of payments and services.
1. New business use cases
Immediate payments have unlimited use cases that a bank can offer to its customers. Since the new business scenarios and use cases will keep emerging, the bank can leverage on its highly flexible architecture to support them. Some of the most common use cases for different types of payments are listed below.
2. New service offerings
With schemes providing the basic payments infrastructure, the participant banks can come up with their own new offerings for different customer segments. Some of the areas where these offerings can be made are as follows:
(2) Use of electronic means for Government payments has unlimited growth potential. In the United States alone, for year 2017, the expected direct benefits credit transfers to individuals is expected to be over US$2 trillion, whereas total tax collection is over US$7 trillion.
3. Commercialization
Commercialization or monetization of payments is another avenue for banks to generate additional revenue. Banks can extend payments services to other smaller players via multiple ways. The most common are listed below:
4. B2B payments promotion
In all geographies, the rate of adoption of electronic payments for B2B use cases is much slower than consumer payments. The major hurdle in this is the lack of simple, easily adoptable standards that can automate the reconciliation of payments and remittance data. Making the payments electronically without relevant remittance data may result in a lot of reconciliation and manual handling issues. To avoid this, bank communities can focus on the following areas to promote B2B payments(3):
(3) Central authorities in many countries are already in the process of promoting B2B payments. Australian NPP is working with BPAY to support payments with URLs to business documents stored on a third-party server or 'Remittance Coalitions' in the USA is focusing on standardization of message formats for electronic exchange of remittance information.
Conclusion
In today's dynamic landscape, the central banks and payments regulators are providing participants the underlined payments infrastructure and encouraging them further to design their own payments solutions. This approach provides an ecosystem-driven scalable architecture, which allows the participant banks and other players to innovate and offer a superior customer experience. In doing so, the participants can come up with numerous solutions to support new payments scenarios, additional business use cases, innovative modes of payments initiation, and value-added and other support services. This opens a door of new opportunities for both banks and non-banks allowing them to engage with new customers, support unconventional / unexplored payments scenarios, and generate additional revenue. Since the implementation of immediate payments is the first step in this process, it can be considered as the beginning of a new payments journey, but not a destination.
About the Authors |
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Vijay Anand Vijay heads the Cards and Payments Practice at Infosys. He has over 20 years of experience in IT services and cards and payments. He has deep experience across the value chain and in delivering cutting-edge solutions to global payment providers and banks across mobile payments, cards, loyalty, and channels. He brings in expertise across the cards and payments value chain, and has been instrumental in managing large cards and payment relationships in Infosys. |
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Abhijeet Athanikar Abhijeet is a Principal Consultant with the Domain Consulting Group within Financial Services at Infosys. Based in Pune, he has ten plus years of experience in large-scale payments transformation programs across the Europe and Asia Pacific regions. Abhijeet's areas of expertise include core transaction processing, payments product consulting, and global messaging standards consulting. He has worked as a subject matter expert and functional architect in multiple payments hub consulting / modernization initiatives. |
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