There are few things worse than waiting to be paid.
If you are a small business, delays in payment are critical. They can disrupt supply chains and slow down the entire operation. Slow payments can also undermine a critical intangible for business success: employee goodwill. Besides, payment delays are an opportunity cost that can drag down productivity.
So, a new generation of financial services is focusing on real-time payments.
The Infrastructure is Already Here
The positive news is that the new infrastructure is increasingly enabling real-time payments.
In developing economies, mobile phone penetration is often remarkably high. But a large percentage of people do not have bank accounts. So, linking to payment accounts is part of financial inclusion.
For example, Kenya has 36 million money accounts linked to mobile phone payments platform M-Pesa. In early 2018, the company launched its push notification Xpress payments service for merchants.
In developed economies, the U.K. is the acknowledged real-time payments leader. It turned on its Faster Payments Platform in 2008. In its first month of operation, it processed 3,000 payments an hour. A decade later, this number was up to 230,000 per hour, with more than two billion for the year.
In February 2019, one year after its launch, 75 banks, credit unions, and building societies have rolled out real-time payments on the NPP. More than 90 million transactions worth more than AUD 75 billion have been processed.
The way to look at real-time payments is to see them as more than a convenience. They can be a catalyst for innovative financial services. These not only save time and money but are in themselves value-added products leveraging rich data.
This is a new world of transparent and real-time supply chains, smart contracts and payment loops. Billers can make initiative electronic payment requests to which customers can respond instantly with mobile payments.
Some Australian fintechs are innovating rapidly around this new technology. But they are also blaming the banks for dragging their feet.
Following on from criticism from the Reserve Bank of Australia, FinTech Australia general manager Rebecca Schot-Guppy accused the incumbent financial players of taking their time with real-time payments. She said that they were running scared of the new competition. There were little commercial incentives for the banks to move on faster payments, she added.
The pinup for real-time payments in Australia is the new platform Airwallex. It was founded by university students inspired by Melbourne’s coffee scene and is now valued at AUD 1 billion.
Airwallex enables its customers to create new international bank accounts instantly, access interbank exchange rates, and send money through local and international clearing networks in more than 100 companies.
Criticism of the banks is justified in part, but the joint venture payment company they created several years ago – Bpay - is evolving separately to become a significant player in real time payments and has itself created two startups which leverage real-time data from payments.
Shift in Power
Some of the new payments products are using data to play in the world of pre and post-payment. This shifts the balance of power in the transaction towards the consumer and employee directly through the timing of the payment.
Shop-now-pay-later startup Afterpay, for example, has been a controversial revelation to the market. It uses a model of enabling consumers to take home purchases. They then pay in four interest-free installments.
For employees, Ascender is another startup which is in the on-demand payments space. It enables employees to withdraw a portion of their pay outside of the traditional pay cycle.
Ascender last week announced a partnership with Earnd to launch on-demand pay in Australia. It gives employees access to their income as they earn it.
The timing of payments is not only a question of convenience. In 2019, it is part of an ecosystem of technologies that are driving innovation and competition based around improved user experience.
One day, perhaps soon, no one will have to wait for payment, and everyone’s UX will be better for it.