From Cash To Real-Time Payments

Forty countries: That’s how many places either have real-time payments programs in progress or live. That’s progress. Yet, there is more work to be done.

In the latest edition of the PYMNTS DataDrivers podcast, Karen Webster talks with George Evers, senior vice president of real-time product at Vocalink, about the how far real-time payments have already come, and where they are headed. Along the way they dug into important data points that describe not only the current status of real-time payments, but the opportunities that could help spark further growth.

Obviously, when it comes to real-time payments, the “speed at which people get money is an important factor” in the spread and use of those types of transactions, Evers said. But that’s not the only benefit associated with real-time payments.

Unbanked Consumers

1.7 billion: That’s the number of unbanked adults in the world, most of them living and working and paying bills in developing economies, such as those in certain parts of Africa and Asia. China has the world’s largest unbanked population, at 225 million people, followed by India (190 million), Pakistan (100 million) and Indonesia (95 million). Unbanked adults rely on cash, and their financial habits and daily lives are largely defined by the habits centered around the use of cash. They take cash to storefronts to pay bills, for instance, and receive cash — sometimes daily pay — in exchange for their labor.

Real-time payments (RTP) can appeal to such consumers because, in part, it can replicate the experience of cash, especially in regards to the speed of transactions.

It’s not a snap-of-the-finger process to set up a real-time payments infrastructure, of course, nor to get people long accustomed to cash to switch this new form of digital payments, no matter how speedy and secure it might be. Evers told how the government of Thailand — and around the world, governments are often the largest employers, and largest sources of payments — used incentives tied to government IDs and other tactics, along with working on the request-for-payment technology, to encourage citizens to switch to digital payments. “It’s really been transformative for that country,” he said.

Of course, consumers in relatively developed countries such as Germany and Japan tend to prefer cash. Using RTP or RTP infrastructure to encourage more digital payments could provide other solid use cases for real-time payments — and it’s important to note that RTP is, essentially, only as good as the use cases say it is.

A successful RTP use case often needs other forces at work. That’s why “nudges” from officialdom are important — the use of cash, like the use of nearly any vital product, medium or service, creates over time its own culture and a sense of comfort and familiarity. “It takes encouragement from major players in the market to try to change (consumer) behavior,” Evers said.

But for all the obvious appeal of speedy, even instant payments, there is more to real-time payments, and innovations centered around it. Investing in a modernized payments infrastructure that can support RTP can bring other benefits related to digital payments, and serve to encourage “financial inclusion, and reduce barriers to accessing bank service,” Evers said. All that can bring other returns on investment for payments, and for commerce.

Gig Economy

And it also takes demand from the workforce, at least if one is guided by the lessons of the growing gig economy. The gig economy is not really wholly new — it more commonly went by the label “freelance economy,” as Webster noted. But what’s new is its scope and importance to digital payments.

More than $1.4 trillion: That’s the projected amount of income attributable to U.S. gig workers in 2018, according to the PYMNTS Gig Economy Index. That is, indeed, a lot of money changing hands — with cash providing a guiding force for real-time payments adoption.

Think of babysitters, or gardeners, or kids who rake lawns (do kids still rake lawns, or are they all busy learning code and designing apps these days?). A successful job was usually rewarded with cash paid instantly at the end of the work. Well, workers — including gig workers who might drive passengers via ride-hailing services, or the person who paints your garage over a weekend — would still prefer instant payments instead of funds that might need a few days before they are deposited or accessible.

And that’s where real-time payments can provide a service.

85 percent: That how many gig workers would do more gig work were they paid in real-time. And that’s why innovation in that space is leading to new marketplaces and more efficient payment schemes for gig workers. “It’s driven a need for payment systems that can support those real-time payments,” Evers said during the PYMNTS podcast.

Fraud Concerns

Of course, all that money moving quickly over digital networks provides opportunity for criminals — and the most sophisticated ones can set up fake accounts, convince even skeptical consumers or businesses to transfer funds and then abscond with the stolen money with little chance of recovery by financial institutions or law enforcement. That said, real-time payments can — with the proper fraud-prevention technology, including machine learning and artificial intelligence — provide the good guys with a chance to spot patterns, links and networks. “You cannot do that with cash transactions,” he said.

Going into the new year, real-time payments stands as one of the hottest areas of the digital world, and global digital economy. That will not change anytime soon. “There is a ton of opportunity,” Evers said, for those organizations that pursue RTP innovation.