BBVA API Market
The financial industry in general and the payments industry in particular is at a time of major developments and changes, and both open banking and especially real-time payments are at the center of this unprecedented digital transformation.
Their growth has been spectacular in recent years, especially in 2020 as a result of the pandemic, despite the fact that they still account for a residual volume of total payments in the system.
In fact, the Prime Time For Real-Time report by ACI Worldwide has projected a 43.4% growth in real-time payments in Spain between 2020 and 2025, and could reach 10% of total payments by that year, which is just an example of what will be the next paradigm of the national and international payment system.
Real-time payments are those where both initiation and settlement take place instantaneously. They are typically conducted through networks that operate 24/7, which means that they are always available to process payments, including holidays, weekends and times when banks are not operating.
Users can initiate payments through a banking platform, and funds will be transferred simply by informing the email address or phone number to which this bank account is linked, without the need to provide any sensitive information. And all in real time.
This system moved around $70.3 billion worldwide in 2020, 41% more than in 2019. It has been so well received in countries such as the United States that the US Clearing House created the Real-time Payment (RTP) network in 2017, which is a system for making and settling payments in real time.
In Spain, the most popular application for real-time payments is Bizum, which already has more than 14 million unique users and close to 9,500 merchants, with 29 banks compatible with this platform.
Although they may seem similar concepts, real-time payments have little to do with fast payments. The basic difference between them is that, although fast payments are executed and settled much more quickly than traditional payments, they are not instantaneous.
This difference is hardly noticeable to users, as current solutions from companies such as Visa or Mastercard execute and settle transactions in a few seconds, giving the impression that the transaction is carried out in real time, when in fact this is not the case.
Businesses are increasingly interested in all that real-time payments have to offer. According to the latest Real-Time Payments Outlook, around 90% of corporate executives are interested in implementing real-time payments solutions in their businesses.
The COVID-19 pandemic has increased adoption both by companies and by banks themselves, which are obliged to accelerate their technological transformation process to encourage bank customers to adopt certain digital services.
In reality, real-time payments can benefit all economic actors, from businesses, consumers, households, to the public sector.
Lack of liquidity is one of the main challenges facing Western economies today, especially in times of economic crisis. This is especially important for small businesses, which are often more vulnerable, and often have to wait several days to receive funds, either by transfer or because the settlement system is slow.
Real-time payments improve the liquidity of small businesses, generating a positive impact on their cash flows. This also benefits the public sector itself, which receive their taxes on time, the employees when they receive their salaries and, in general, a country’s whole economic system.
The real-time payment system is much more efficient than other similar payment systems, such as checks or bank transfers. But it is also much cheaper. According to Deloitte’s Economic impact of real-time payments study, the adoption of an instant payment system could save companies around 8% by reducing the cost of a company’s invoicing and payment process with traditional payment systems.
Overall, the report’s five-year projection is that the economy could save around $464 million annually if there is high take-up of real-time payments.
The old model of central bank regulated entities is rapidly being replaced by a new ecosystem of banks and fintechs. A new generation of financial innovation in which both sides are bound to work very closely together.
Real-time payments are just one of the many innovations in this new digital ecosystem, which will provide new opportunities for growth through the banking infrastructure opening up to third parties (open banking), and the new opportunities arising within this new digital system.
The takeoff of real-time payments is going hand in hand with the spectacular growth of open banking, which is supported by EU-wide PSD2 and other international regulations. Banking APIs help to make all transactions instantaneous, and real-time payments are no exception.
For example, the BBVA Business Payments and Business Collections APIs, which are used to manage payments and collections, respectively, automatically, instantly and adapted to the needs of customers and suppliers. Consequently, companies can improve the efficiency of their bank reconciliation, reduce operational costs and increase the satisfaction of their business relationships.
In short, real-time payments represent an important qualitative leap in the relationship between companies and customers. In addition, their adoption has a number of economic and financial advantages for society as a whole.
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