Retail Instant Payments

What are Instant Payments and how they differ from Legacy Payments?

Characteristics of Retail Instant Payments

The simplest form of instant payment is Cash, globally cash is the most widely used and ubiquitous form of payment because it has two very distinct properties;

1. First, Cash is an instantaneous transfer of actual value, meaning that the recipient of Cash can use it straight away, or we can say that it is instantly settled. This is something that legacy digital payment systems have lacked. Today, when a card payment is made, usually the merchant does not receive the funds in their account for some time, often days. This makes the entire process cumbersome and leaves very little incentive for a merchant to adopt digital payments.

2. Secondly, Cash is universal, it is accessible and accepted without distinction, you always know how much you have, and it excludes no one.

Instant Payments are a form of Digital Payment that looks to imitate these two fundamental characteristics of Cash.

An Instant Payment looks to exhibit three characteristics together; First Speed and second Service Availability, these two mean that final funds are both credited and available in real-time or near-real time, seven days a week, 365 days a year at both institutional as well as end-user levels.

Third is Transaction Irrevocability, meaning the inability of a sender to reverse a payment once it has been received, without first obtaining the consent of the receiver. This is absolutely vital when it comes to merchant payments, the concept of irrevocability is a key consideration for merchants, cash payments are irrevocable, and instant payments must exhibit this characteristic to appease that class of user.

Instant Settlement for both FSPs and End Userss

Perhaps the most significant difference between an Instant and Non-Instant Payment is the Mode and Frequency of Settlement between the Financial Service Providers within a Scheme, where Settlement happens through a deferred net settlement arrangement we look at that as a non-instant payment, whereas where Settlement is Guaranteed either through pre-funding or other arrangements, we look at this as an Instant Payment.

Figure (1) - The two different perspectives to a Settlement

When deciding whether a payment is instant or not, we must focus on both the Institutional Settlement between the Payer FSP, Payee FSP, and the Scheme providing interoperation between the two, as well as the End User's Settlement with their FSP. If End User Settlement is Instant, but Institutional Settlement is not, on the whole, we can not classify this as an Instant Payment.

We discuss the concept of Deferred Settlement in detail in Deferred Settlement and compare it to Instant Settlement

Value Add Features for End Users

Most Instant Payment implementations have several value additions to the basic payment offerings, these include but are not limited to the following.

1. Payment By Alias: Payment by an alias is a feature in instant payment systems that lets users send money using an identifier like email, phone number, or username instead of bank details. It simplifies the payment process, increases security, and facilitates quicker payments as users don't need to wait for the recipient's bank account details.

2. Request to Pay (RTP): This service allows a payer to receive a payment request from a payee before initiating the payment transaction. RTP can be used to provide additional information about the payment, such as an invoice or payment details, or to confirm the payment amount before the transaction is initiated.

3. Confirmation of Payee (CoP): This service verifies that the recipient of a payment is the intended recipient by checking their name against a trusted database. CoP helps to prevent fraud and misdirected payments.

4. Payment initiation through a third-party provider (TPP): This service allows a payer to initiate a payment transaction through a third-party provider, such as a mobile banking app or payment service provider. TPPs can provide additional features, such as account aggregation or budgeting tools, to enhance the user experience.

5. Payment tracking: This service allows both the payer and payee to track the progress of a payment transaction in real-time. Payment tracking can provide reassurance to both parties that the transaction has been completed successfully.

All of these along with several others and their use cases are discussed in great depth in the Value Addition Features section.

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