Few Facts on Instant Payments

When it comes to transitioning to Instant Payments, how much is cost a barrier for banks?

Most banks process payments in batches at set times. 

By contrast, Instant Payments is an online system that requires 

- Continual input, 

- Process and 

- Output of data. 

Put simply payments must be processed as they are received.

This transition has major associated demands and challenges. 

• Banks need to both change their internal infrastructure to handle real-time as well as connect to the relevant national payment scheme or schemes. 
• Critically the implications aren’t purely technical – there are major operation requirements to ensure governance, not to mention business considerations around how the core system will power forward-looking products and services. 
• Sophisticated routing decisions have to be instantly taken, fraud and anti-money laundering checks now need to be handled instantly, and exception-handling processes require automation.

The problem for mid-sized and smaller banks is they only have a sledge hammer to crack a nut.

For example, large global banks may already have a payment hub that they can use in their core markets, but such systems are difficult to customise and costly to deploy in smaller, subsidiary markets. 

They are expensive to license, inefficient at lower transaction volumes, and often hide additional professional services fees. The price tag increases further when middleware and database licenses and the requirement for heavyweight infrastructure are factored in.

So yes, cost is one of the biggest barriers, and it is particularly acute for smaller banks asking for a lower cost way to provide the speed of execution their customers need today, and the digital services they expect tomorrow.

What is the risk if the banks don’t embrace this?

When Banks are started talking  maybe a year or so ago they were not sure about instant payments, asking what the business case was for it. That has changed completely in the past 12-18 months. 

There is a pan-European payments scheme in the pipeline at the moment and all the banks are saying forget about the business case, we have to get on board with this because if we do not offer instant payment and all our competitors are we are out of business. So instead of being a differentiator or a value-add it has become part of the table stakes. If you are a bank you’d better be offering instant payments or else you’ll get left tin the dust.

Difference between Instant, Real-Time, Faster and Immediate Payments?

Fundamentally there is no difference, it is simply semantics. 

• In, The UK scheme is called Faster Payments, 
• While in Singapore the scheme is called G3 which they describe as ‘Immediate Payments’. 

They all refer to the same thing – and that’s moving from an off-line, batch based payments processing system, to an on-line system which processes payments as they are received.

The terms are used interchangeably depending on where you are in the world and who you’re talking to. Instant Payments is the term that seems to be used the most widely in the market.

What is Vocalink?

Whenever we make a payment through internet banking or set up a direct debit, money has to go from your bank to the gas company for example. 

As we can imagine there are millions of these payments flying around each day. Rather than each bank paying directly to the other banks, which would mean lots of separate connections between banks, it is easier to have a central hub in middle. 

All bank payments go into that hub the hub then sorts them into the right order, sends them on their way and then settles with the Bank of England.

Vocalink is that hub. 

 - It sits between all the banks, 

 - Transfers the payment messages &

 - Makes sure the money at the end of the day is settled at the Bank of England. 

They have been doing that for about 50 years so the tech has changed a lot 

But they now look after 

- The Bacs (Bacs Payment Schemes, formerly known as Bankers’ Automated Clearing Services), 

- Faster Payments and LINK (which is the domestic card payments ATM scheme).

History of the ATM - In Netherlands

From 1982 to present

The early 1980s saw a revolutionary innovation – a device with a screen and some buttons that allowed customers to withdraw money that they could then spend in the shop. The cash dispensing machine soon became indispensable, but with the rise of bank cards and mobile payments, the hole in the wall has had its day.

The very first ATM in the Netherlands appeared in Limburg at Rabobank Pey en Maria-Hoop on 22 April 1982, to be precise. The rest is history. Other Rabobank Nederland cash dispensing machines quickly followed in 1982 in Utrecht, Eindhoven, Zeist and Best.

And the local Rabobanks also installed ATMs en masse.

By 1985, no fewer than 60 ATMs had been installed throughout the Netherlands.
There were 3,300 ATMs in the Netherlands in 1992 and about 1,300 of this total belonged to Rabobank.

ABN Amro and Postbank/NMB did not pass the 700 ATM mark.

And the other Dutch banks had even fewer ATMs.

ATM vs. smartphone

The cash dispensing machine celebrated its 25th birthday in 2007. There was a total of around 9,000 ATMs in the Netherlands that year, of which 3,100 belonged to Rabobank.

Many of these were located in assisted care facilities. A portable cash dispensing machine could also often be found at events. The same year the bank introduced the option of mobile payment, a development that Rabobank believed would be met with success.

And it seems the bank was right on the money. Now in 2016, ATMs play only a supporting role. You can pay with your debit card in practically any shop and often at the market too. More and more Rabobank customers can pay by tapping their smartphone against a device at the till. One beep and off you go, all thanks to Rabo Wallet.

At the same time, there are many empty storefronts because online shopping has become the new standard. Innovation has done anything but stop.

The end of cash

Now less cash is in circulation making many experts believe the days of the ATM are numbered. In Sweden, for example, they have set a target to get rid of cash by 2025, when all payments will have to be made through apps or machines. The Scandinavians really are ahead of the rest of us, but it seems the pace has been set. So slowly but surely the question is becoming whether the ATM will be around to celebrate its 45th birthday.

Who would have thought this back in 1982 when we were able to get cash from the hole in the wall for the first time?

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