Real time, instant, fast payments — what’s not to love?

Imagine being able to send and receive money to another account anytime, 24/7, 365 days a year, immediately. Other benefits are: the transfer is usually free (and if not free, cheap). No hidden fees, no % fees for instant payments. Welcome to the world of real time payments.

• To some reading this, sending $50 to a friend or business locally anytime might sound completely expected and almost boringly normal. If so — your central bank has done great work behind the scenes to build this national payment system and ensure bank participation. (S/O to central bankers!).
• To some, it might be a “well private companies or networks Venmo, Cash, Zelle can do it, what’s the big deal?”. But, if sending funds requires consumers to have a particular companys’ app, or be part of a certain bank that is part of a specific bank group, or charge hidden fees, or take your data, that’s not truly a real time payment system accessible to all. The strength of private companies might even be a result of a failure to have an accessible national real time payment system.

Credit to Designstripe

Definitions

I’m guilty of throwing around terms — so let’s go through a few.

• Real Time Gross Settlement System (RTGS): The Bank of England had a succinct definition — Infrastructure that holds accounts for banks, building societies and other institutions. The balances in these accounts can be used to move money in real time between these account holders. This delivers final and risk-free settlement. [1] I’ll oversimplify RTGS to be a national ledger that enables the efficient and instant transfer between accounts. Instant payment systems are built on RTGS.
• Instant Payments: Sometimes used interchangeably with RTGS, but these are usually built on top of RTGS. Each country can name it differently, like UPI (India), PIX (Brazil) or NPP (AU) or FAST (SG). The list goes on (full table at the end of this post). The ECB has a solid primer here.
• Account to Account payments (A2A): A transfer between two accounts without intermediaries[2]. I’ve noticed “A2A” has popped up more recently and has been used interchangeably with instant payments. I don’t think that’s quite accurate as technically, an account to account transfer could take 2–3 days (depending on the speed of payment systems), or could be instant.
• “Retail” payment: A smaller value transaction between individuals (peer to peer) or a consumer to a business. This could have some limits per day, but that might be defined by the participating financial institutions. Retail instant payments are the focus of my post.
• “Large value” payment: Large value transactions (millions, billions) sent between banks, businesses. Not the focus of this post. Sometimes known as “B2B” payments.

What’s to love about instant payments

1. Easy peer to peer transfers: Pay your friends and acquaintances fast, conveniently and safely
2. Lower merchant acceptance cost: Merchants pay fees to third parties in order to accept digital payments. Instant payments is a lower cost alternative to cards, and easier to track than cash. Instant payments gives more options to merchants to lower their cost of operations and reaches new segments that might not have cards.
3. Settling bills quickly: Businesses get liquidity faster, rather than having to wait (nervously) for 3–5 days for funds to land.
4. Business dynamism: Any individual or small business can set up a QR code and accept payments quickly. It can be a stall selling food by the road, a busker on the street, or an online bakery. The possibilities are endless.

What’s not to love about instant payments

I honestly struggled with this section and am interested to hear more views. But always believe in making the best case possible!

1. Possible reduction in bank profits: I once overheard someone say that banks hate real time payments because there’s not much margin to be made in facilitating them.
2. Privacy: the government sees your data. To me, this is a choice between giving my data to a private company or to a government. If you’re already sending 2–3 day bank transfer, that transfer becoming instant isn’t increasing data exposure? Happy to be wrong here — comments most welcomed. If the concerns run deep, cash is the alternative here and a separate topic.
3. Fraud: I acknowledge this risk. If you can send funds to a friend instantly, you can also send funds instantly to a criminal. The extra 2–3 days for bank transfers of cheques to clear could be seen as a way to ensure more checks and balances, and provide a chance to cancel the payment.

Looking forward to a longer list of instant payment networks

I made a non exhaustive list of instant payment networks that I could think of. Looking forward to this list growing, please comment to add.

Retail focused, non exhaustive. See footnote on Fednow [3]

[1] Further excellent reading from the BOE here

[2] A good primer here

[3] I was tempted to exclude Fednow as it is not quite as adopted as the other networks. Fednow