Instant Payments Injecting Speed into the Payments Market

October 2020

Fintech & Payments

Nick Maynard

VP of Fintech Market Research

Despite the fact card and online payments may look very fast to us, they are not taking place instantly. Indeed, instant payments are transactions that are completed within ten seconds. This new payment innovation, which is currently led by Europe, will reach $18 trillion in 2025; generating a growth of over 500%. This represents 17% of all B2B and consumer digital money transfer and banking payments by value in 2025. It is therefore safe to say that instant payments have the potential to disrupt the current payments landscape.

The success of domestic instant payments schemes will enable cross-border vendors to connect different schemes into cross-border networks, which will radically reduce the time, cost and frustration involved in the current cross-border payments ecosystem. However, this will also require established cross-border vendors to revisit their business models, as the fundamentals of the market change drastically. This has already been successfully trialled in Europe. The European Union has in fact taken a leading role in harmonising and updating payment systems and structures. The implementation of SEPA, a scheme designed to simplify bank transfers in euros by standardising payment rails, has also been one of the factors behind the EU’s success in cross-border initiatives.

This situation could not be more different that that of the US, which is currently lagging behind other continents in implementing instant payments solutions, with only an 8% share of global instant payments transaction values in 2025. This comes down to the fragmented nature of the country’s financial system, making adoption slow to date. Indeed, the Federal Reserve has planned implementation of ISO 20022 for its FedWire service, which was originally scheduled for Phase 1 in November 2020 and go-live in late 2023. However, this was postponed in September 2019; an update in May 2020 announced that Phase 1 would not go live in 2020 or 2021, further delaying the roll-out.

Financial system’s fragmentation is one of the challenges of instant payments, but it is not the only one. Large amounts of legacy infrastructure are also creating obstacles to the implementation of instant payments, as they can be difficult to leave quickly and effectively. For this reason, if clean-slate instant payments schemes were set to replace older payments systems, it would be difficult to transition between these systems in an easy way, with long transitionary periods required.

On top of that, it must also be noted that, while instant payments are a fairly unique solution to replace traditional payments schemes, they are not the only alternative, both in the B2B and consumer market. P2P (Person-to-Person) payments options, for example, are functionally similar to instant payments, often offering payments within minutes via an app-based infrastructure. Even the B2B cross-border market offers forms of instant payments. The main challenge then will be one of marketing and customer awareness.