Instant payments for financial inclusion

Financial inclusion has become a top priority globally – around 1.7 billion adults do not have access to basic financial services, which limits their ability to participate in the economy and negatively impacts their quality of life. One of the key hurdles to financial inclusion is limited access to digital payment systems, especially those that facilitate faster payments and provide payment confirmation and money availability to the payee in near real-time. Instant payments have the potential to be a game-changer for financial inclusion in all areas, both in geographical and purpose terms. They have already revolutionised the financial industry, providing a range of possible benefits for consumers and businesses, and altering the way we are perceiving and experiencing the payments.

As technology continues to advance and consumers increasingly demand faster (as in, on-the-spot) and more dependable payment options, instant payments are on track to become the new, obvious standard. We have become accustomed to information immediately circulating around the world, no matter the distance, particularly in the form of news and social media. Instant payments not only enable a convenient way to carry out everyday transactions for people who are already banks’ customers, but they also help those who are underserved – low-income individuals, immigrants, refugees – by providing them with low-cost alternatives to traditional banking services. However, the exact benefits of instant payments vary depending on the specific context, use cases and needs of different populations.

For example:

1. Small business owners can receive payments from customers almost instantly. This can help them improve their liquidity, cash flow and increase business productivity, as the funds are available faster.
2. People reliant on regular and timely payments to cover their daily expenses could stay afloat more easily.
3. Instant cross-border remittances could also improve the quality of lives of overseas workers and their distant families, who may be settled in rural or remote areas.
4. Transitioning from cash to instant payments could help mitigate the risk of fraud, theft or loss of funds that is connected with the physical exchange of money in many places.
5. Near-instantaneous peer-to-peer and government-to-citizen transfers can be crucial in emergencies to meet the immediate needs of the payees.
6. Fast, traceable payments can also help people to seamlessly pay bills without the risk of missing the due date of the invoice.

There are also some challenges that come with instant settlement.

First of all, near real-time payments are more vulnerable to cyber threats, data breaches, fraud, operational risk, money laundering and terrorist financing. Executing faster transactions requires investing in secure, reliable infrastructure (internet connectivity), technology (like mobile availability) and developing appropriate regulatory frameworks, among other aspects.

Collaboration between various stakeholders (including financial institutions, governments, regulators, policymakers, payment technology and services providers) is essential to ensure the interoperability and standardisation of different payment systems and address the risks to service providers and users, whether customers or businesses. Adequate risk management is important to not undermine the trust and confidence of the users (both new and accustomed to digital payments). Clear and simple regulations are of value in fostering the idea of instant payments.

Second, the adoption of instant payments can have unintended consequences on existing payment systems, like cash-based systems. They may continue to be important for certain groups that are less familiar with digital payment methods and can exacerbate existing inequalities if inaccessible or unaffordable to all individuals.

Instant payments are not a silver bullet to increasing financial inclusion. They can facilitate much in our lives, but they also need to simultaneously address the root causes of financial exclusion, such as a lack of financial education, social and cultural barriers, inadequate infrastructure. Efforts to promote financial literacy and protect consumers are highly welcomed to make instant payments an inclusive solution.