Being able to transact instantly and on a 24/7 basis is expected today and the ability to execute a payment instantly offers great value to all parties in the value chain. Consumers benefit from the increased convenience, corporates benefit from the increased liquidity and reduced risk and banks are able to position the bank account back in the center of payments and design new products tailored to the fast moving markets of today and the future. Instant Payments offer a perfect fit to the commerce of today.
Instant Payments are the next big change in the payments industry, expected to have even more impact than the transition to SEPA. And the use cases of Instant Payments are very interesting. Splitting a restaurant bill. Paying for the loaded cargo on a ship waiting in the harbor on Sunday. Buying a used car without carrying an envelope full of cash. Or paying your plumber for an emergency repair in the house late at night. And in all cases the recipient has immediate availability of the funds.
When talking about Instant Payments, mobile p2p is always the first use case that comes up. For instance: sharing a restaurant bill or paying for drinks in a bar. This type of payment starts from the mobile, and in the implementations around Europe this is often combined with a proxy service, or an alias conversion service. This allows the user to use a mobile phone number, or an email address to send payments, and this gets translated to an IBAN automatically. However, payments between consumers are typically offered for free, and the actual volume in payments is low as it is about 4% of digital payments today.
In countries already live with Instant Payments, mobile P2P is almost immediately used for small business payments as well, such as paying the babysitter. The big opportunity here lies in cash replacement. In most of the countries in Europe, cash is still a very big and very expensive part of payments. Banks need to fill ATMs, governments need to print the money. A recent study by the Dutch National Central Bank showed that replacing a cash transaction with a digital one saved the retailer about 25%.
Business to business payments are also prime candidates for Instant Payments. Although the value of these transaction may initially not fit within the current EPC scheme limit of 15k EUR, the value Instant Payments can bring to this area is definitely worth exploring. International transport for instance today relies on expensive and cumbersome processes such as documentary trade and escrow services. With Instant Payments, a shipping company does not have to guess how much grain will be loaded, guess the actual price and put those funds in an escrow on Friday. With Instant Payments, the shipping company can just make the transfer after the ship is done loading. Concluding, there are interesting use cases in every quadrant, ranging from P2P, C2B, B2C and B2B, and although volume and value of these quadrants being very different, the benefits for the users are clear.
The next set of use cases are in the consumer to business space. Instantly upgrading mobile phone minutes saves the mobile phone operator from using expensive credit card payments to ensure the payment is guaranteed. In the corporate to consumer space, companies can use Instant Payments to avoid late fees on invoices, or use it to pay their employees always on the 25th, irrespective of whether it is a Monday, Friday or Sunday.