Why are Real-Time Payments Booming in Some Countries but Not in Others?

    Insights » Global » Why are Real-Time Payments Booming in Some Countries but Not in Others?

    Key points to understand why Brazil, India and Thailand are the stars in this industry while growth is more limited in other markets.

    Close up hands holding mobile phone with app for send and receive money. Woman and customer holding smartphone and making payment transaction. Smart phone screen displaying digital payment sent.

    Tonet Santana

    Senior Consultant – APAC

    In a vast number of online articles and in most payment and banking conferences, real-time payments (RTP) are typically touted as “the next big thing.” The problem is that RTP has been hailed as the glittering future of global payments for many years now — and while the industry has undoubtedly advanced in this direction in some countries, in others, the instant payment revolution has still not happened at scale, globally. Thus, many question whether the RTP global story is more complex than most analyses make it seem.

    On the one hand, we have remarkable examples of success, such as Brazil’s PIX and India’s UPI instant payment solution. On the other, there are markets where the real-time payments industry faces significant challenges. In general, most analyses focus on success stories, but few delve into why this solution is not as popular in other markets.

    This article provides a comprehensive portrayal of the state of the instant payments industry by examining both situations. The idea is to give readers a 360° overview of the RTP industry worldwide and help them understand why it has succeeded in some places but is growing slowly in others.

    elected RTP schemes, from slowe paced adoption to phenomenal RTP adoption. The case of Brazil's Pix, India's UPI, FPS in Hong Kong, CD/ATM in South Korea and RTP in Australia.

    BRAZIL’S Pix

    Developed by Brazil’s Central Bank (CB), the Pix system was one the most successful RTP deployments in the world. The meteoric adoption of Pix in the country was a surprise even for Brazilian regulators, with this solution boasting 163 million users and over 66 billion transactions after 3 years of its launch.1

    The success of Pix in Brazil is underpinned by a few simple factors. Firstly, the country’s central bank has been able to come up with a truly game-changing and easy-to-use system, where the control of information is centralized.

    From the start, the value proposition of the new system has been crystal clear for both consumers — who don’t pay fees to use Pix — and merchants — who pay interchange rates substantially lower than those charged by credit card operators (around 1%).  Additionally, the integration of the Pix solution into banks, neobanks, and fintechs’ back-end systems is mandatory, so all transfers can be processed via Pix.

    The user experience (UX) was also standardized, meaning that no matter what platform is used, the payment process is always the same. All these conditions combined made Pix easy to adopt. Today, every financial institution with over 500.000 active accounts offers it with low to zero fees, in an easy-to-understand flow.

    INDIA’S UPI

    UPI was launched in 2016 in India. Seven years later, its total volume has reached $5.2 trillion.2 Today, UPI has over 400 million users3, and 5054 banks and Payment Service providers (PSP) participate in it.

    This system was created by the National Payments Corporation of India, an umbrella organization created by the Reserve Bank of India and the Indian Banks’ Association, which has always been at the forefront of the race to roll out new technologies and innovative systems for the payment industry.

    For instance, before launching UPI, it first helped to introduce a system of virtual addressing in which, to make money transfers, Indians only needed the receivers’ social security numbers, the “ADHAAR”. Another system was later rolled out also allowing for the use of receivers’ mobile phone numbers. UPI incorporated and improved these innovations. The result was a payment solution that was fast, efficient, and easy to use — a no-brainer.

    UPI has given Indian consumers access to what is also a very cheap way of making peer-to-peer transactions and paying merchants. The system’s efficiency, combined with the fact that it is free for consumers and with its role in driving digital inclusion in India, helped to turn UPI into a game-changer in the country’s payment market.

    THAILAND’S PROMPTPAY

    PromptPay is one of the key initiatives of a major digital transformation program driven by Thailand’s government. Launched in 2016, this RTP solution reached a 34% share of total payments volume by 2022 and accounted for 42% of all e-commerce operations in Thailand5.

    Again, one of the drivers of PromptPay’s success was the fact that it provides an excellent user experience. For instance, customers only need to tap their national ID or mobile numbers to start using the system. Credit card penetration rates are relatively low in Thailand–only 25% of the population–which has also contributed to the rapid adoption of PromptPay.

    CHINA’S IBPS

    The Chinese have multiple options to make RTPs. Typically, however, P2P instant payment solutions are delivered through digital wallets operated by large digital groups. The leaders of the segment are Alibaba’s Alipay and Tencent’s WeChat.

    These wallet providers launched their instant payment solutions even before financial institutions developed their initiatives in this area, therefore enjoying “first mover” advantage in the country. Today, customers can use the wallets’ seamless RTP solutions not only to make P2P payments but also to obtain small buy-now-pay-later loans while shopping with a wide range of merchants.

    Chinese private banks have responded to the growth in use of wallets by launching IBPS, a RTP solution focused on domestic consumers and merchants, and CIPS, a system used for cross-border payments. Additionally,  they are rolling out a system to facilitate cross border transfers between key countries in the Asia Pacific region.

    AUSTRALIA’S NPP AND HONG KONG’S FPS

    Both Australia’s and Hong-Kong’s populations are heavily banked, and their rates of credit card ownership are high—54% and 73%, respectively.6 Consumers are used to “tap and go” with their cards, so it has been a challenge for RTP companies to convince them to switch to instant payment methods. “Why fix something that isn’t broken?” many people question.

    In Hong Kong, since 2018, the payment infrastructure known as Faster Payment System (FPS) links banks and payment service providers, allowing for interoperable transfers between bank accounts and mobile wallets. Still, cards and digital wallets dominate the e-commerce sector. Wallets are also heavily used for P2P transactions — a segment in which real-time payments are struggling to grow.

    Hong Kong’s government has tried to boost the use of real-time payments in the country by providing cash dole-outs to its citizens through the HBSC mobile payment solution PayMe, which has contributed to increased use of FPS. Octopus which has been in the country for decades also uses FPS as its backbone, further boosting FPS numbers.

     Australia’s real-time payment infrastructure, known as the New Payments Platform (NPP), was developed collaboratively by SWIFT and 13 members of the country’s financial services industry, including the Reserve Bank of Australia. The platform was launched in February 2018. However, its pace of adoption has been relatively slow, as not all banks have embraced NPP quickly, particularly outside the group of the country’s four largest financial institutions.

    In 2022, nearly 90 million customer accounts have gained access to the NPP system. At that time, 110 banks, several credit unions, building societies, and fintech companies offered NPP-enabled services. Still, real-time payments constituted only 6% of the total transaction volume in Australia.

    Both in Hong Kong and Australia, RTPs can only start growing vigorously if there is a substantial move by key players. For instance, if large merchants, such as giant retailers or utility groups, promoted the use of instant payment schemes, their use would likely advance rapidly.

    SOUTH KOREA INTERBANK CD/ATM

    South Korea has probably one of the oldest real-time payment networks in the world. The so-called CD/ATM was created by Interbank in 1988. Of course, it was not the same type of instant payment solution that we have today, with new payment rails issued by central banks; instead, it involved a structure to process real-time transactions through a network of ATMs.  

    Surprisingly, however, the number of real-time payment operations in this RTP pioneer has actually declined in recent years. In March 2020, 36,712,300  RTP transactions were processed in South Korea, a drop of nearly 40% from the figures for May 2015 — 60,938,000 transactions. This trend can be partially explained by the high usage of cards and digital wallets in the country. They are the leading means of payments in both e-commerce — where cards hold a 54% share and digital wallets, a 25% share — and POS payment — where the shares are 59% and 15%, respectively.


    KEY INSIGHTS

    An analysis of these cases leaves us with four key takeaways in the debate about the drivers of success for RTP solutions in a specific country:

    Make it a no-brainer for consumers

    Ever heard of an offer one can’t resist? When designing real-time payment systems and experiences, payment providers have to be guided by this principle. The experience for consumers must be positive, seamless, and uniform across the system.  At the same time, there must be practically no barriers to entry for consumers and merchants who want to start using these RTP solutions.

    It is not true that if you simply “build it, the transactions will grow”

    Building an RTP rail will not necessarily bring instant take-up. This is true particularly in advanced markets, with higher rates of card usage and financial account ownership. On the other hand, RTP solutions seem to become a game-changer in markets like India and Brazil, where financial inclusion is still an issue.

    The conclusion is that the “allure of the novelty” is not enough to drive the growth of real-time payments. These payment solutions must have a clear value proposition for local consumers, which will inevitably depend on what other payment channels are available to these consumers (the alternatives to RTP solutions).

    All players need to be onboard for a real change

    All relevant payment providers, including traditional financial institutions, must be onboard to advance a real-time payment revolution. In general, incumbent players contribute to the design of new solutions and then reach out to new players, counting on their help to push the innovation agenda forward.   

    Think Long Term and Keep the Focus on Consumers  

    Real time payment solutions have the potential to improve the levels of financial inclusion in a country, promoting structural economic transformation, and benefiting large sectors of the population.

    In the short-term, however, these solutions may negatively affect the profits of some incumbent players such as card networks and acquirers, which will experience competition from low-cost alternatives. Ultimately, all players need to adapt to this new reality in payments and create new value propositions that will ensure the attractiveness of their products and services.

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    PCMI specializes in global payments market research and intelligence for Asia, Europe, Africa, and Latin America and the Caribbean (LAC). We have more than four decades of market intelligence experience and have produced over 300 studies in the payments industry.


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    Sources

    1. As of November 2023. Central Bank of Brazil. ↩︎
    2. NPCI, Nov 2023 ↩︎
    3. CNBC, Sep 2023 ↩︎
    4. NPCI, Nov 2023 ↩︎
    5. ACI Worldwide, It’s Prime Time for Real-Time 2023 ↩︎
    6. The World Bank ↩︎

    Avatar photo
    Tonet Santana
    tonet@paymentscmi.com

    Tonet is a seasoned leader in payments with nearly two decades of experience not only in traditional banking but more recently in emerging new digital payments and technologies in local, regional and global roles covering more than 100 markets. Having worked in the Philippines, Hong Kong and in New York, Tonet brings a unique viewpoint, a deep understanding of local nuances vis-à-vis regional and global prioirities and a great and profound appreciation of the power of diversity and inclusion.