Consumers today have been conditioned to expect everything in a real-time digital environment. Whether they’re taking out a loan, buying clothes, making an investment or performing countless other activities, customers expect their transactions to happen instantly and with minimal friction.
Online payments, by and large, have not kept up. This is an issue for merchants, whose customers are frustrated with long settlement times and payment processes that require extra steps. Instant payments solve this by not only offering a seamless experience, but also helping merchants build customer trust and reduce churn.
Benefits such as improved speed, lower operational costs, better conversion rates and a seamless checkout experience await businesses that adopt instant payments.
Barriers to adoption
So why aren’t instant payments ubiquitous in Europe? There are several factors.
One is the continued use of physical plastic cards in countries such as France, Spain and Ireland. Though payments via cards can be instantly authorised, they are not settled on real-time payment rails. For example, online card payments can take up to 10 days to settle. Not only does this make it harder for merchants to manage their cash flows, but it also slows down the refund process for customers. Digital wallet transactions can be faster, but still suffer from a 24-hour delay.
Bank transfers solve this issue when instant payment rails are available. But in Europe, this infrastructure suffers from a lack of interoperability. One such example is Single Euro Payment Area (SEPA) Instant Credit Transfer, or SCT Inst. Launched by the European Payments Council in November 2017, it was the first pan-European instant bank payments scheme. But SCT Inst has several flaws. For example, it is optional for banks, and it uses two different infrastructure solutions, RT1 and TIPS. Banks can choose to opt into either. Yet these two systems aren’t interoperable, so a bank using TIPS can’t make an instant payment to a RT1 participant and vice versa.
Historically, SEPA was also reserved only for banks. Following the implementation of PSD2, open banking has helped provide merchants with greater access to these rails.
How to realise the promise of instant payments through open banking
Luckily, recent initiatives to create open banking standards in Europe now make instant payments within the reach of any merchant. Open banking allows registered third parties to access their customers’ bank account if the user consents.
These standards allow businesses to take payments and retrieve data directly from customers’ bank accounts, with expressed permission, via open application programming interfaces (APIs). When instant bank payment systems are available in a country, like the Faster Payments system in the UK for example, open banking can offer instant payments that are seamless and secure for both consumers and businesses.
Take TrueLayer Payments, which brings instant bank payments to customers in Ireland, France, Germany, Spain, Lithuania and the Netherlands. Using open banking and Europe’s fastest payment rails, TrueLayer Payments delivers the following benefits to merchants and their customers.
- Improved speed: Immediate settlement doesn’t just benefit merchants. It also speeds up refunds for customers. Instead of waiting for their money to return to their accounts, consumers receive it instantly. The result: a better experience and increased customer loyalty.
- Lower operational costs: Legacy payment approaches require time-consuming, manual tracking processes, which are both costly and prone to human error. With instant payments, however, these processes are automated. Instant bank payments also help businesses avoid the interchange fees and chargebacks associated with card payments, making instant payments far more cost-effective.
- Higher conversion rates: Instant payments can help businesses improve their conversion rates. Cards and manual bank transfers both require customers to punch in sensitive data, which takes time and effort. If they feel that a payment process takes too long, they may simply leave before completing it. Instant bank payments solve this issue by using biometrics on mobile devices to authenticate payments. This creates a fast, seamless experience that’s more likely to convert customers.
- Increased liquidity: Many businesses — especially small businesses — struggle with managing liquidity because of how long it takes traditional payments to settle. Instant payments powered by open banking can change this dynamic. Deloitte notes that real-time payments can be “especially impactful to small merchants who may be used to waiting days for their settlement, possibly creating a positive impact on their cash flow and daily sales outstanding.”
- Improved security: Traditional payment approaches come with high fraud risks, especially as it pertains to card-not-present (CNP) transactions. Global financial losses related to card payments are estimated to reach more than $34 billion this year, and in 2020, CNP fraud accounted for 76% of all fraud losses. Open banking reduces much of this risk because card details are not shared in the transaction. Instant bank payments also harness biometrics to authenticate users, adding further security.
Key industries that benefit from instant bank payments
While businesses across all industries can benefit from instant bank payments, a few industries stand out in particular.
Financial services
Any platform that allows its users to invest in both traditional financial instruments or cryptocurrency should facilitate instant payments. Firstly, users of these platforms do not want to go through a lengthy onboarding process. In a TrueLayer survey, 61% of European investors said they’d leave a sign-up process that took longer than 10 minutes. As noted earlier, open banking protocols can allow users to seamlessly authenticate themselves.
Secondly, speed is essential when trading. Traders want instant deposits because waiting even an hour to make an investment can cost users a lot of money, especially in fast-moving markets. It’s perhaps no surprise then that almost half of current investors (46%) say they were likely to switch providers for instant withdrawals. Providing access to instant withdrawals and deposits creates trust in an investing platform and makes customers more loyal.
E-commerce
Shopping cart abandonment is a big problem for online retailers. Their customers are often fickle and won’t tolerate long, complex checkout processes. And when they do complete a purchase, they want to be sure they have access to quick, easy refunds. Failing to offer either can cause merchants to experience customer dissatisfaction and churn.
Instant bank payments offer smooth, frictionless flows that make paying as simple as scanning a fingerprint or using a face ID. They also facilitate instant refunds, fostering loyalty in the process. Together, these features help merchants offer a smoother shopping experience, increasing conversion rates and preventing abandonments.
iGaming
Like trading and crypto, iGaming companies need to offer a fast experience to keep up with customer demands. Users need instant access to their pay-ins, and more than half of iGaming users are likely to switch to a service that offers instant pay-outs as well. Both features are key to bringing an in-person gaming experience to a mobile app.
Instant bank payments with TrueLayer allow companies to offer just that. Transactions settle in real-time, allowing users to access their deposits quickly. And when the time comes to withdraw their winnings, customers get peace of mind in knowing their funds are available immediately.
With instant bank payments, both businesses and consumers in Europe can experience the many benefits of speedy, cost-effective, and highly secure digital transactions. Visit https://truelayer.com/payments to learn more.
