INSIGHTS byNordea Transaction Banking
INSIGHTS by Nordea Transaction Banking

Instant payments are the future - here’s why

In our increasingly digital world, 24/7 convenience is everything. E-commerce doesn’t sleep—goods and services are being bought, sold and consumed internationally, every second of every day. To help businesses meet these demands, countries around the world are adopting instant payment schemes to facilitate real-time, cost-effective payments—and soon this will apply across borders.

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We live in a mobile, digital and immediate world. Today’s consumers, businesses and manufacturers expect lightning-fast delivery of their goods and services. And they all want to make purchases at whatever time suits them; 24 hours a day, seven days a week.

To thrive in this new environment, many businesses are turning to instant payments. An instant payment is when funds are shifted electronically between accounts within just a few seconds. The transaction can be initiated 24/7, 365 days a year, and buyers and sellers receive near-immediate notifications (via SMS or another method) that the transaction has been successful. Account-to-account payments also avoid the fees associated with traditional credit or debit cards, and merchants don’t have to wait until the next day to receive funds.

“Instant payments will become the new normal in our digital, 24/7, borderless economy. This will benefit consumers and businesses of all sizes, from SMEs to corporates and multinationals,” explains Tino Kam, Head of Payments, Liquidity Management and Corporate Channels at Nordea. And global trends suggest his prediction is right.

 

"Instant payments will become the new normal in our digital, 24/7, borderless economy. This will benefit consumers and businesses of all sizes, from SMEs to corporates and multinationals."
Tino Kam, Head of Payments, Liquidity Management and Corporate Channels, Nordea

 

The rise of instant payments

Domestic instant payment schemes have proven successful in several countries around the world, including the United Kingdom, Japan, Poland, Sweden, Denmark, Singapore and Mexico. Many of these countries have already experienced rapid market uptake.

The UK is widely considered a frontrunner in instant payments, as one of the earliest adopters in 2008. Today over 125 million instant transactions take place in the UK every month —and the scheme has evolved to meet the needs of larger businesses as well as consumers. But other European countries aren’t far behind.

Denmark introduced its ‘Straksclearing’ scheme in 2014. The scheme allows instant credit transfers 24/7, with a maximum payment limit of 500,000 Danish kroner (approximately €67,100). Since then it has seen a significant uptake of instant payments, largely due to its launch of the MobilePay app which makes the solution highly accessible for consumers. In 2016, more than 50% of Denmark’s population used MobilePay to complete a transaction. Sweden has adopted a similar instant payments model with its Swish mobile app, which is now used by almost half its population.

Adopting cross-border solutions

The pattern of domestic success with instant payments is clear. But with the rapid rise of international trade, how long until we see instant payments across borders? The European Union will be the first to embrace a regional model. After several years of discussions, the Single Euro Payments Area (SEPA) Instant Credit Transfer Scheme (SCT Inst) came into force in November 2017, and is now live with selected banks.

SCT Inst enables the immediate transfer of funds between different bank accounts in Europe, both domestically and across borders. Eventually, it could be offered in 34 countries and territories—the 28 EU member states, plus Switzerland, Norway, Iceland, Monaco, Liechtenstein and San Marino—making it an exciting world-first in terms of its scale. “You’ll be able to transfer funds from a Finnish bank to an account in the Netherlands. And even though it’s cross-border, this transaction will happen in less than 10 seconds,” says Kam.

 

"Once the banking and consumer communities get used to making instant payments, we’ll almost definitely see the payment limit grow. I think we’ll progress beyond €15,000 sooner rather than later."
Tino Kam, Head of Payments, Liquidity Management and Corporate Channels, Nordea

 

The future of SCT Inst

While SCT Inst is being rolled out gradually across European countries, Kam doesn’t think it will be long before adoption is widespread. “Since domestic instant payments were introduced in the UK, they’ve seen a year-on-year growth of over 15%,” he says. “That’s very impressive.” He hopes this is an indicator that consumers and businesses are ready to embrace change.

Kam also points to recent predictions made by industry experts. Business intelligence consultancy Ovum has estimated that, by 2024, instant payments will have overtaken payment cards for online purchases. Within 10 years, it predicts that instant payments will account for over €725 billion in e-commerce sales.

The usefulness of SCT Inst for businesses may be hampered by its relatively low payment limit—which is initially only €15,000. But Kam doesn’t expect this barrier to remain for long. “We can look at the existing UK scheme as an example. Its instant payment limit has increased substantially, from £100,000 to £250,000,” he says. “So once the banking and consumer communities get used to making instant payments, we’ll almost definitely see the payment limit grow. I think we’ll progress beyond €15,000 sooner rather than later.”

In Finland, plans are even more ambitious—the country intends to move towards a limitless instant payment scheme in 2019, to replace its current real-time gross settlement (RTGS) system.

Nordea is embracing the change

While the SCT Inst scheme is optional for banks and payment providers, at Nordea we’re embracing the initiative. Our goal is to implement and support standardised, harmonised and multi-currency instant payments across the Nordic region, while keeping fees competitive—making the system a viable alternative to payment card transactions. And that’s not all.

“We want to offer our customers the greatest possible value under this new scheme,” says Kam. “Of course, we intend to provide our corporate customers with instant payments—but we also plan to integrate these offerings with Nordea’s open banking platform, the latest APIs, treasury dashboard tools and virtual account management solutions. That will give them everything they need in one place. We’re very excited about the opportunities this is going to create.”

 

We intend to provide our corporate customers with instant payments — but we also plan to integrate these offerings with Nordea’s open banking platform, the latest APIs, treasury dashboard tools and virtual account management.
Tino Kam, Head of Payments, Liquidity Management and Corporate Channels, Nordea

 

In our next article we’ll look at SCT Inst in more detail, and the specific benefits your business stands to gain from being an early adopter of regional instant payments. Subscribe to our Insights newsletter if you don’t want to miss it.

For more information: Nordea payment services

 

With special thanks to

TinoKamTino Kam, Head of Payments, Liquidity Management and Corporate Channels, Nordea

 

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