The global pandemic has accelerated the expansion of eCommerce deployments and the adoption of new and innovative online payment methods. Moreover, instant or real-time payments are having a disruptive effect on the traditional payments market by enabling rapid transaction processing.
However, the transition to instant payments is not happening in a universal way. Rapid payment schemes tend to be updated versions of legacy payment settlement approaches that were created by individual authorities in countries.
Debit card payments, while certainly fast, do not tend to lend themselves to the same use cases as instant payment applications, given the requirement for the supplier to accept the card transaction -- which historically include significant transaction processing fees.
Instant Payments Market Development
While instant payments are somewhat unique -- in terms of replacing old payment schemes to enable faster payments -- the outcome of this approach is not unique by any means. Across many business-to-business (B2B) and consumer markets, Fintech alternatives to traditional payment methods have emerged.
According to the latest worldwide market study by Juniper Research, the value of instant payments, where transactions are completed within ten seconds, will reach $18 trillion in 2025 -- that's up from $3 trillion in 2020; a growth of over 500 percent.
This represents 17 percent of all B2B and consumer digital money transfer and banking payments by value in 2025. The market study found that Western Europe is driving innovation and will account for 38 percent of instant payment transaction value by 2025.
Juniper analysts identified that the success of domestic instant payment methods will enable cross-border vendors to connect different schemes into financial networks, which will radically reduce the time, cost and frustration involved in the current international payments ecosystem.
However, this will also require established cross-border vendors to revisit their business models, as the forward-looking fundamentals of the global payments marketplace could change drastically.
It's interesting to note that this new research found the U.S. market adoption of instant payments will likely trail other leading markets, with only an 8 percent share of global instant payment transaction values in 2025.
It's interesting to note that this new research found the U.S. market adoption of instant payments will likely trail other leading markets, with only an 8 percent share of global instant payment transaction values in 2025.
While real-time payments (RTP) has been available in the U.S. market for some time, the fragmented nature of the nation's financial system means that universal adoption has been slow to date.
"With the proposed FedNow service from the U.S. Federal Reserve not coming into service until 2023 or 2024, the American marketplace is falling behind in instant payments. Vendors must concentrate on creating innovative digital payment products to bridge this gap or be faced with an outdated system," said Nick Maynard, lead analyst at Juniper Research.
"With the proposed FedNow service from the U.S. Federal Reserve not coming into service until 2023 or 2024, the American marketplace is falling behind in instant payments. Vendors must concentrate on creating innovative digital payment products to bridge this gap or be faced with an outdated system," said Nick Maynard, lead analyst at Juniper Research.
Outlook for Instant Payment Applications Growth
According to the Juniper assessment, the worldwide growth of B2B payments will dominate values in the instant payment marketplace, accounting for 89 percent of global transaction values in 2025.
According to the Juniper assessment, the worldwide growth of B2B payments will dominate values in the instant payment marketplace, accounting for 89 percent of global transaction values in 2025.
While consumer payments are numerous, B2B payments have much greater average values. The research identifies that instant payments adoption can be particularly transformative in B2B applications, where value-added capabilities -- including automation and additional remittance data enabled by ISO 20022 -- can be valuable in tackling complex accounts payable processes.
That said, I believe that the upside opportunities to create and deploy new applications are open to fintech start-ups and traditional financial services organizations. This is an environment where design thinking and agile software development methodologies are key to fueling new digital growth.