How instant payments are fast-forwarding the future of remittances in North America

June 13, 2023 |
By - Philip C Daniel
4 minutes read
4 minutes read
By - Philip C Daniel

According to industry predictions, real-time payments (RTP) represent the future of the evolving payments ecosystem. Influenced by the pandemic, RTP’s share of transactions doubled in the US in 2020, as reported by ACI Worldwide. By 2025, the report estimates that RTPs will have a CAGR of 43.4% with 6.2 billion extra transactions.¹

Similarly, as per a Federal Reserve report, 90% of businesses in the US anticipate using faster payments by 2023, allowing financial institutions (FIs) to make RTP safer, efficient, and available 24x7x365.² Likewise, another research report reveals that the instant payments market is forecasted to attain a value of $126.4 billion in 2032, rising from $18.3 billion in 2021.


The rise of real-time payments

In the US, the RTP network’s growth primarily accelerated after the onset of the pandemic. As consumers and employees in record numbers remained restricted within their homes because of the global shutdown of both banks and businesses, individuals and corporates rushed to find faster payment solutions to sidestep the social distancing barriers.

Another survey noted that RTP’s capability ranked as the second-most critical factor when enterprises opted for banking partners. As much as 81% of the businesses stated that RTP could significantly transform how they conducted daily business while 66% expected paper cheques and cash to be completely replaced by RTP.³ Individual customers too cited quick transactions as a deciding factor in choosing a financial institution with 30% listing this reason.

Though traditional payments presently account for the most number of transactions in the US, the instant payment systems in countries like Canada & Mexico have shifted to more sophisticated modes of payments such as e-transfer & SPEI respectively. Similarly, Brazil’s instant payment system PIX disrupted the payments landscape in the region &provided key benefits for both merchants and consumers. No wonder, the instant payments volume was slated to rapidly rise during 2022 and thereafter. In keeping pace with the rapid rate of change, a growing number of institutions are upgrading to future-proof their payment infrastructure.

Yet this is not an easy task. Before RTP benefits can be recognised globally, FIs and their infrastructure would need standardisation and interoperability to expand the RTP networks. At the same time, their business models will also require restructuring. The obligations include providing round-the-clock payments to domestic customers, managing various payment schemes globally, and countering the risk of fraud.

Today, global commerce and financial frameworks are being revolutionised by instant payments. In the US, broader open banking initiatives are emerging due to RTP. From only being a financial services provider, the role of legacy banks is transitioning to that of a partner both for retail and corporate customers.

Additionally, by becoming a part of the RTP network, banks are collaborating much more with their peers and rival banking entities than they did earlier. But with major changes underway in the nation’s financial ecosystem, banks and FIs must be well prepared in dealing with their impact.

In managing the rising volume of data in the entire infrastructure, real-time analytics and insights will be required as real-time payments create a new framework in technology and business strategies. With real-time insights into payments data, companies can access intelligence that reveals and resolves problems impacting the RTP systems. These include application performance or infrastructure issues concerning customer payments; performance issues regarding specific types of payment; performance deviations due to payment volumes and fraud alerts triggered by suspicious transactions or behaviour. Despite the rapid rise of RTP in the United States, these seem relatively modest in comparison with other geographies. Take Brazil, which leads Latin America in digital payments. Here the instant payment portal is powered by the nation’s central bank. Launched at the end of 2020, the platform has quickly soared in popularity, partly because of its ease of use and simplicity. With 60% of Brazilians using it regularly, the platform had more than 8 billion transactions in 2021.


Gaining momentum in the US

Coming back to the US, more than 200 FIs have been integrated into The Clearing House’s RTP® network as of May 2022. Meanwhile, to create digital assets such as cryptocurrencies, distributed ledger technology is being used and the development of a US digital dollar is being explored by the Fed.

In North America, both merchants and FIs can benefit from the new payment ecosystem. Through QR codes and wallets, instant payments provide a convenient mode to make purchases as funds are available immediately for the receiving party unlike the lag experienced in e-transfers of traditional banks.

In 2022, the global instant payments market’s net worth is estimated at $24 billion. At this rate, a growth reaching $102.3 billion in absolute dollar terms can be expected between the forecast years of 2022 and 2032. Worldwide, instant payment systems that charge a specific amount for their services are the highest-grossing segment, unlike the free-of-cost kind. Consequently, this segment is expected to grow at a rate of 17.9% during the forecast years based on the quality of its services.

The online fund transfer mode has also been gaining popularity in recent years. As the most popular segment, person-to-person money transfers are slated to register the highest growth rate compared to other applications at a 17.4% CAGR during the forecast period.
North America leads the global instant payment services market for merchants operating in regional markets. The instant approval merchant accounts in the US can be attributed to the acquisition of almost 35% of the world’s instant payments market, which is expected to touch almost $44.7 billion in 2032.

The Asia-Pacific region follows North America in the case of total contribution to the market share via its bigger number of PoS instant payment installations in regional markets. In this region, the top-performing nations are China, Japan, and South Korea, which jointly account for 16% of the world’s instant payments market.

Today, thanks to the growth and popularity of RTPs, the financial firmament is turning more competitive, particularly in the e-commerce domain. As they vie for more customers, merchants and FIs will promote instant payments as one way to provide consumers with better services. If North America intends to extend its leadership run in real-time payments, it must continue to stay one step ahead of the financial innovations curve.