And moving money, like every other aspect of our lives, is becoming ever quicker and easier, no matter how much we’re sending or where we’re sending it to.
In this article, we’ll be looking at the rise of pan-regional immediate payment schemes: what they are, why they’re being developed, and what their emergence means for consumers and organizations alike.
What are pan-regional immediate payment schemes?
When you hear the words ‘fast money transfer' or 'immediate payment’, your mind might wander to the likes of Western Union, PayPal, MoneyGram and Wise – the payment service providers (PSPs) that allow you to transfer funds across currencies and countries in an instant.
But for the most part, these services work at the front end of the payment system. At the back end, you’ll find an established global payment infrastructure that facilitates each transaction, and historically this infrastructure hasn’t offered immediacy. Indeed, this is the differentiation that these PSPs offer, using technology to artificially speed up the funds' transfer process, at least as far as the user was concerned.
In recent years, however, the back-end infrastructure has begun to transform. One of the earliest examples was the Single Euro Payments Area (SEPA), introduced in 2008 and fully implemented in eurozone countries by 2014, which facilitated fast and secure money transfers within the pan-region of the EU. This scheme further introduced SEPA-Instant in November 2017, allowing for euro transactions to be processed in seconds, regardless of the weeks’ time and day. Unlike most payment methods, the speed is independent of your account provider’s underlying payment clearing and settlement arrangements. As long as both European payment institutions, involved in the transfer, are participants in SEPA-Instant, the transfer should be near-instant or up to 10 seconds by definition.
More pan-regional systems have followed, particularly in Europe, such as Pay.UK across the United Kingdom and P27 across the Nordic countries. The latter example is notable for the fact that it was built from the ground up to work across multiple currencies, whereas Pay.UK and SEPA were originally designed to deal in just the one (though SEPA has since moved into other European currencies.)
What is driving the immediate payments?
The next questions: why, and why now? There’s no singular motivation behind these new schemes. They are, instead, the result of a broad and seismic shift in circumstances, technology, and expectations.
- Changing preferences: With the residents of most developed nations now enjoying instant transfers within their own borders, they are beginning to expect the same for transfers that extend beyond those borders.
- Market demand: This change in expectations has driven a demand in the market that services like PayPal have thus far filled, but that better infrastructure could make it cheaper and more efficient.
- Technological evolution: The march of technology is relentless, and every day the pool of available tech and tools expands. We now have access to the technology that makes pan-regional immediate payment schemes possible.
- Regulatory changes: Financial regulators are beginning to understand the benefits of diluting the power of the big credit card companies, by creating a system that largely removes the need for a third-party middleman.
What does an immediate payment future look like?
Let’s close our eyes and travel to a world in which instant payment schemes have gone beyond the national and the pan-regional, and now extend to the entire world.
In this world, a transfer from Canada to Bulgaria is as instant as a transfer between two banks located across the street from one another. In this world, global commerce and trade are incredibly efficient and agile, and able to adjust and react to market conditions in real-time. In this world, consumers, businesses, and governments are no longer hamstrung by the infrastructure of the global financial system.
The good news is that this future is already beginning to be realized. In late 2020 SWIFT gpi Instant went live, granting select banks in select countries the ability to send and settle international transactions in under a minute (and in some cases as little as 13 seconds).
There are also the exciting possibilities presented by Request to Pay (R2P) technology. An individual or business can request payment from another individual or business, with the paying party giving their approval in as little as a single click. This technology will offer consumers and businesses an alternative to traditional credit card and direct debit payments in any number of situations, including invoicing, e-billing, e-commerce, P2P (peer-to-peer) payments and POS (point of sale) transactions.
Immediate payment schemes, whether national, pan-regional, or global, are where we’re heading. The current lack of universal immediacy simply doesn’t jive with the modern world, and the sooner we institute the necessary systems, the sooner we can make the most of them.
Written by Tal Weiser, Managing Director of Sales, Global Services International Payments at Finastra