The benefits of
The underlying infrastructure enables banks to launch game-changing products and services that provide real customer value and position the banks at the centre of the payment process. The latter is extremely important as many non-banks are beginning to extract great value from the payments process and more importantly the customer relationship.
The full extent of the benefits of a real-time service will vary because it is largely dependent on the vision and motivations of the key stakeholders and how the core infrastructure is implemented. The underlying real-time infrastructure needs to be designed in a way that is conducive to the development of new services that create value for end-users ensuring frictionless access to the payments infrastructure which is critical.
Over the years VocaLink has invested a great deal in understanding the business case for real-time, whether for the economy, society, or for key stakeholders.
At a macro level, the introduction of real-time payments offers tangible benefits to a national economy through increasing liquidity and efficiency of the payments system, which in turn will support GDP growth. These benefits will have a particularly positive impact on government (in the form of increased taxes and lower costs to the treasury or finance ministry), but will also have applicable benefits to central banks and other payment industry stakeholders.
The most pronounced benefit to an economy is likely to be the impact of increasing the velocity of money. In simple terms, this means that by moving to real-time payments from batch systems, money can be used to make a greater number of purchases or other transactions within the same elapsed timeframe; effectively, the productivity of money increases.
For central banks, there is a straightforward benefit in the better management of risk across the economy: a real-time transfer is much more transparent than a batch payment with its opaque liabilities.
In the UK, it has taken time, but we are beginning to see the value being created for banks and end-users as evidenced through collaborative innovation such as the Payments Council’s mobile payment service, as well as Zapp and other individual bank innovations such as Barclays’ PingIt. The real value resides within the development of overlay services to end-users such as digital payments initiation services. It is these services that have the propensity to generate lucrative revenues for banks, in particular the person-to-business propositions.
A compelling vision and roadmap is required to capitalise on the opportunity. In the UK, Zapp (due to go live later this year) is generating momentum as banks begin to realise the benefit of enhanced consumer engagement and responsible spending. A great deal of insight has been garnered during the building of the Zapp business case for banks and merchants, which has global applicability.
By moving to real-time account transfers, banks can position themselves perfectly to leverage these new technologies and introduce services that are as good or better than the new entrants. Banks are now starting to realise the huge potential this reintermediation of the payments ecosystem brings.
Business and government
A basic real-time payments capability delivers benefits to businesses and government as payers and receivers. A growing number of applications are benefitting from real-time and in the UK, volumes of business payments being processed through Faster Payments are increasing steadily. Applications such as weekly and daily wages lend themselves perfectly to real-time, and similarly, the dispersal of urgent payments such as insurance pay-outs, short-term loans or business-to-business trade payments that would result in penalties for late payment are all moving from batch based services to real-time.
A number of significant benefits to businesses will be realised through digital payments initiation services, such as those use cases outlined in the Zapp service. In these applications, the businesses (or merchants) are operating as receivers of real-time payments and there is a compelling range of benefits that span the various use cases (e.g. funds in the bank account and available as part of the purchase - no delays or subsequent reconciliation issues – resulting in a better customer experience due to fewer dropouts during the purchase process).
The benefits of real-time account transfers and the associated digital payments initiation services to consumers are largely non-financial as most consumers do not pay for making payments today. Nevertheless, a number of emerging propositions are highly desirable and consumers are prepared to pay a premium for them. These services are secure, easy and above all, convenient. The immediacy of the solution fits perfectly into today’s lifestyle, where ‘on demand’ is critical. For example the Zapp proposition enables a seamless purchase experience, allowing greater choice and even enables consumers to check their balances before a purchase is made.
With the right products being made available by the banks, consumers are put firmly back in control of their spending. They can check fund availability, pay who they want, when they want and from wherever they are, all from their bank account, from a single mobile device. There is no need for cards, a cheque book, or to a certain extent cash.
A survey of 10,000 consumers undertaken by VocaLink in February 2013 identified that 35% would be more likely to use an alternative payment solution if it were offered by their bank and 63% of people familiar with mobile payments would trust a solution offered by their bank. The clear view that has been expressed is that it is the banks that are trusted and expected to deliver these services.