Instant payments are now longer a luxury for customers. It’s a necessity. The problem that everyone from customers to businesses to financial institutions have struggled with is how to make real-time payments both affordable and secure.
Thanks to advancements in technology, that’s becoming a reality. In fact, there are over 40 real-time payment systems in more than 30 countries. Additionally, P2P apps, like Venmo, and digital wallets, like Due, are free when transferring funds using your balance, debit card, or bank account.
Even ClearXchange, the P2P payments network owned by U.S. Bank, Bank of America, and other large institutions are offering instant, person-to-person payments for free. Meanwhile, there’s now same day ACH and the fintech industry is using the blockchain in order to send and receive eCash like bitcoin across the world immediately and pretty much for free.
For those accustomed to those expensive costs and fees when transferring funds, this may be shocking. After all, how is it possible to send real-time payments for almost nothing?
The Beginning of Real-time Payments
For starters, the German real-time payment specialist firm Lipis Advisors released a report entitled ‘Instant Payments: Insights from Early Adopters’, that found that smaller banks are better positioned to respond to regulatory, as well as consumer pressures, for faster payments than larger banks because they don’t have to implement a full-blown payments hub. They can do so by taking a lean approach by integrating vendor solutions with existing back office systems.
Another report, this one entitled ‘Practical Experiment of Blockchain Technology in Japanese Domestic Interbank Payment Operation’ by the Blockchain Study Group (BSG), discovered not only the effectiveness of blockchain, but also is capable of reducing costs across the board. This is because the blockchain doesn’t require hardware and OS licences, middleware applications, and maintenance.
How Can Digital Wallet Startups Compete
Most importantly, in order to compete with companies like PayPal, Ripple, Xoom, Dwolla, and TransferWise, traditional banking institutions have no choice but to offer their own real-time, cross-border payments for either free or at the least at a very low fee.
Considering that the overall cost of instant payments are decreasing, thanks to reducing operational costs, there’s no excuse for banks to charge seven bucks, like what U.S. Bank toyed around with last year, or an outrageous 20 percent.
Instant in Instant Payments Technology
Customers and businesses are clamoring for instant payments. For customers, it will settle situations like asking your friends to fork-over money for dinner. Instead, everyone could just transfer the money from their account to yours before you even finish dessert. For businesses, it would prevent any cash flow problems. Remember, the sooner that you get paid, the sooner you can pay your expenses.
Improvements in Digital Wallet
Furthermore, technology has made it possible to send instant payments for essentially nothing. This is because you can send the payments directly to the other party. This removes the middlemen and the fees they charge you for processing a payment.
For banks, however, instant payments don’t require the costs involved with hardware and operating licenses. By reducing these operational costs, they should be able to offer customers free, or affordable, real-time payments.