An era of instant payments
For Latvijas Banka Monthly Newsletter, In Focus, October, 2018
Instant payments provide an excellent notion of what modern financial services should be like. The 21st century consumer expects any service to be available online, here and now. Paying invoices, making purchases or transferring funds to a friend's or relative's account can take place at any moment of the day or night and from any location with internet access. It only takes a couple of clicks and seconds for the money to reach the recipient who can use the received funds instantly. Instant payments are quick, convenient, secure and user-friendly, and they are available now.
28 August of 2018 marks one year since Latvijas Banka started the era of instant payments (instant interbank transfers executed within a matter of seconds 24/7/365) in the euro area. Understanding the substantial benefits that instant payments can bring to the economy and people in Latvia, Latvijas Banka initiated a challenging project to develop an instant payments processing infrastructure in Latvia. Timely action and close cooperation with market participants ensured that on 28 August 2017 Latvijas Banka was the first in the euro area to introduce the instant payments infrastructure based on the so-called SEPA Inst scheme – common rules for euro instant payments in the EU.
Since November 2017, the customers of the banks "Citadele" and "SEB banka" and as of 9 October 2018 "Swedbank" customers as well have already been benefitting from the advantages of instant payments by making both mutual transfers and transfers to more than 1000 euro area banks. Those three commercial banks service nearly 90% of all customer accounts in Latvia. At this point of time, more than 80% of the customer payments between "Citadele" and "SEB banka" are already made via the so-called instant payments channel, i.e. they are executed instantly 24/7/365. Over the past ten months, more than 1.6 million instant payments totalling 350 million euro were processed in Latvijas Banka's system. Absolute majority of instant payments processed by Latvijas Banka's infrastructure are executed in less than a second (on average 0.4 seconds). The project is a great example of how a small central bank can create a new and innovative infrastructure with its own resources adopting the state-of-art IT technologies quickly.
Instant payments serve the needs of the public perfectly: they are available 24/7, every day and night, including weekends and holidays.
They significantly save the consumers' time and provide various opportunities for better management of their funds. Smartphone is currently the most convenient device for making instant payments, but they can also be executed via internet banking. Those who do not use smartphones but for whom it is important to receive money on their account at any time, including weekends and holidays, can also benefit from the advantages of instant payments. The infrastructure for instant payments is universal, and it will be accessible on any other devices in the future, in the age of the Internet of Things in particular.
To meet the needs of the general public, commercial banks, creative FinTech companies and merchants need to introduce more and more creative payment solutions. The future of instant payments lies in their closer integration with the opportunities provided by smartphones and other mobile devices to enable people to use this payment method when making purchases at stores or paying for various everyday services, e.g. catering and transportation services, etc.
Instant payments have the obvious potential of not only considerably accelerating the speed of payment processes, but also facilitating lower fees, simpler payments, alternatives for retail traders and service providers and, eventually, also strengthening consumer confidence. Moreover, instant payments provide significant benefits to the public and the economy at large.
It becomes a new normal rather than a premium service to settle an invoice or transfer funds to a friend's account from a smartphone by touching its screen just a few times and making the payment in a couple of seconds.