Real-Time Payments: Why It’s Good News for The Banking Community
By Paul Stoddart, CEO, Vocalink, a Mastercard company
Real-time payments have the potential to revolutionise a country’s payment ecosystem for people, businesses and its financial community. An excellent example is Thailand’s PromptPay, which has transformed the way people and businesses transact while providing the financial sector with cost efficiencies and a platform on which they can build and deliver innovative services.
Real-time payments are quietly transforming small businesses too, creating new entrepreneurs and benefiting whole economies. The 24x7 culture of transferring money conveniently via a mobile phone, tablet or app is gripping nations by storm and nowhere is this more prevalent than Thailand.
The Thai government recognised that real-time payments had to be a vital component of their strategy to bring 21st century banking services to all communities and the financially excluded –18% of Thais aged 15 and above don’t have a bank account. Thailand’s main interbank payments provider, NITMX, invited Vocalink to help Thailand enter the world of real-time payments through the use of our Multi Proxy Platform (MPP) and Immediate Payments Solution (IPS) to launch PromptPay.
PromptPay went live in 2017 and has been a game-changer for both Thai consumers and businesses. The PromptPay service allows registered consumers to transfer funds from person to person using a mobile phone, by knowing either the recipient’s mobile or Citizen ID number. It can also be used to receive payments from government agencies, such as social security benefits, retirement payments, and tax refunds.
The impact of PromptPay has been significant. Over half of the population are registered for the service - that’s 40 million people. Over 173 million transactions and 700 billion baht have now been processed, up from 36 million registrants with a combined money transfer value of 200 billion just six months ago .
The immediate draw for many Thai citizens is the ability to receive government payments in real-time, rather than waiting days or weeks to receive a cheque. The business community has also benefited. A new generation of stay-at-home entrepreneurs emerged, as anyone with access to a smartphone was able to buy and sell with convenience; from a stay-at-home parent selling kids’ toys to someone taking on an additional job merchandising teeth whitening products to save for a mortgage. For the more established Thai businesses, real-time payments have helped to build customer loyalty via immediate transactions, enabled them to compete on a level playing field with competitors and opened up a global, as well as local, market.
According to Vocalink, for the twenty-one banks in Thailand that signed up to PromptPay, the new system solved a major challenge by creating a state-of-the-art system at minimal cost and with no immediate requirement to upgrade their internal standards. The beauty of any real-time payment system is the opportunities that it creates for the future, and the potential longer-term savings.
For banks and other financial institutions, systems such as PromptPay are ready-made platforms from which to launch innovative new services and take advantage of the benefits that APIs bring. In their annual transaction banking survey with Ovum, Temenos research reveals that businesses are clamoring for real-time payments systems. 80% of corporates say real-time payments has improved risk management, 77% say it has improved liquidity management, and 76% say it has improved cash visibility.
There is also the reduction in the reliance on cash that will help the banks to cut costs and invest in tailored services that meet the needs of one of the world’s savviest digital nations. However, while countries across the globe aim for a cashless society, there are cultural and psychological factors that need to be addressed in order to ensure nations are comfortable with this rapid pace of digital transformation. One of the biggest issues faced is digital security. Ajay Banga, President and CEO of Mastercard recently stated, “In our pursuit of a truly connected world, trust and security are critical to successful digital development."
The banks will have a major part to play in this. A survey by Vocalink Analytics showed that 46% of businesses would turn to their bank to ask for help with fighting online fraud. The spotlight is therefore on the banks, as trusted partners, to deliver support that both businesses and consumers demand. Improving data literacy and raising public awareness about data, privacy and information will be an important part of any financial institution’s communication with its customers. However, to be effective, collaboration with real-time payment providers, API producers and the wider financial sector is going to be an essential part of a bank’s future remit.
For Thailand, they continue to move at a fast pace. By the end of this year, a standardised QR (quick response) code payment system introduced by the Bank of Thailand will also be put into use nationwide. PromptPay and QR, authorities say, will bring more people into the digital realm and increase the adoption of e-payments. The global banking and financial community will watch with interest and learn from this trailblazing nation that’s not afraid to grasp the nettle.