Instant Payments Reach an Important Inflection Point, with Asia Leading the Charge

Morgan McKenney

Morgan McKenney,
Asia Pacific Core Cash Management Head Treasury and Trade Solutions, Citi

Deeksha Kaushal

Deeksha Kaushal,
India Cash Product & Innovation Head Treasury and Trade Solutions, Citi

James Park

James Park,
Asia Pacific Emerging Payments Lead Treasury and Trade Solutions, Citi

Asia’s payment landscape has crossed an exciting inflection point in the adoption of instant payment solutions across the region, catalyzed by three major trends.

Growth of Internet Access via Mobile as a Dominant Gateway to the Economy

Globally, 4.4 billion people (57 percent of the total population) are now connected to the internet, and the majority (4 billion people) does so using their mobile devices1. These new access points enable and drive the adoption of various emerging payments mechanisms, such as mobile wallets, instant payments and digital cards. Recent reports predict that these payments solutions will account for more than 80 percent of all new consumer-tobusiness (C2B) payment growth in Asia Pacific. Much of this can be attributed to the global growth in eCommerce, which is forecasted to approach USD5 trillion in sales by 20212 .

Given Low Credit Card Penetration in Asia, 24x7 Instant Payments Availability via Bank Accounts is Enabling Real-time Online Purchases in the Region

In Asia, there are two billion more people who have a bank account versus those that have a credit card3. For example, in large markets like China, the average credit card penetration rate is as low as 15 percent4 and in various emerging Asia countries where eCommerce is booming such as India, Thailand and Philippines, credit card penetration rates are low single digits. Nearly all markets across Asia have now launched domestic 24x7 instant payment schemes that enable real-time purchases from bank accounts for a very large set of consumers, fueling the adoption of instant payments.

Government Policies to Drive Digital Payments

In addition to consumer payment trends, governments throughout the region are championing the push to digitize payments to reduce payment friction and cost and increase transparency through new technology infrastructure that enables instant processing of transactions and information exchange. In addition, banks, technology disrupters and fintechs are playing their part in championing change by building new payment applications and services that leverage open standards to increase adoption. Their combined efforts have made instant payments a viable and attractive business option as compared to traditional payment options such as cash on delivery, checks and credit cards

As a result of the various forces mentioned above, instant payment adoption is gaining more traction across Asia. For example, instant payment transaction volumes have more than doubled in some markets, such as India, Thailand, and the Philippines, while there are some such as Hong Kong and Australia that are growing even faster.

In addition, demand for more frictionless and economical ways to transact has encouraged payers and payees to embrace seamless payment mechanisms, like Request-to-Pay (R2P) and QR-based payments through mobile applications over conventional payment methods.

In Asia, R2P allows consumers and businesses to tag an email address or mobile number to their bank account, allowing them to easily make a payment without providing that sensitive information. R2P provides control and flexibility for payers, while reducing processing cost for billers versus cash and cards. QR code payments are a contactless payment method where the payment is transacted by scanning a code from a mobile app that transmits crucial bank account information without requiring the user to manually enter it.

This trend has opened the door to even greater innovation. To reach more consumers, businesses and banks have started to focus increasingly on the promise of instant payment solutions, which are particularly attractive in “underbanked” markets. These markets represent a significant untapped segment where credit card penetration is low and mobile adoption is high and rapidly growing, which makes instant payment methods such as R2P and QR codes effective due to the ease-of-use and cost effectiveness.

As a result of these market opportunities, businesses and banks are spearheading a paradigm shift in global treasury management with the goal of unlocking the full potential of the digital economy. One example, which we will explore in more detail is India, who have been leaders in digitization and innovation. Since the launch of a countrywide digitization project called Digital India in 2015, the country has been at the forefront of global payment transformation.

India’s Digital Journey

Digital payments in India have exploded over the last four years. In fact, retail digital transactions skyrocketed from 6.8 billion in 2016 to 28.5 billion in 2019 demonstrating a steep shift towards digital payments5. This is a massive transformation for the country given that before 2016, a significant portion of domestic payments were in the form of physical cash transactions. There was little incentive for the average consumer to adopt digital payment methods because merchants, especially smaller ones in the informal economy, refused to accept anything but cash.

With increasingly favorable demographics, deepening mobile and internet penetration in the country and a wide array of digital payments methods being available, we are seeing the emergence of contextual commerce both for digital native companies as well as traditional brick and mortar companies adopting digital channels.

One of the key factors in the rise of digital payments has been regulatory impetus through initiatives, such as ‘Digital India’ and incentive programs to encourage smaller merchants to adopt digital collections. For example, in 2018, the government announced a waiver of Merchant Discount Rate (MDR) charges for digital transactions below INR2,000 for a period of two years to encourage greater adoption. To further promote digital payment methods across points of sale, effective from January 1, 2020, charges for digital payment methods like Rupay credit cards and UPI QR Codes have been waived for both the consumer and merchant6.

In an effort to continue to foster digital transformation of the payments landscape in the country, the National Payments Corporation of India (NPCI), an umbrella organization for all retail payments, was established under the auspices of the Reserve Bank of India (RBI) and Indian Banks Association (IBA).

Since its inception, NPCI has been a trailblazer. In the last few years, it has launched several unique instant payment schemes, such as Immediate Payments Service (IMPS) and Unified Payments Interface (UPI) to drive digital payments and reduce dependency on cash in the economy.

UPI has been a major success story in India. This highly popular digital payment scheme has grown 178 times in just three years from seven million transactions in April 2017 to 1,247 million in March 20207 . More than 500 million of these transactions were C2B payments8. The overwhelming popularity of UPI has enabled companies to collect from retail customers instantly on a 24x7 basis. These transactions are similar to card transactions, but provide far greater security and also significantly lower cost of collections for corporates. Introduction of UPI has altered the landscape of India’s digital payment mix — UPI’s share of total digital payments has increased to 47 percent in 2019 within three years of its launch in 20169.

Apart from UPI, there are also mobile wallets available to enable customers to pay their bills, make payments to local businesses and each other.

In a traditionally cash-centric economy such as India, there are steep intangible costs associated with cash and check payments, primarily due to higher risks and delayed settlement timelines. The impact of COVID-19 on physical forms of money have also been significant. The introduction of real time, 24x7 and fully digital payment schemes is helping to address these challenges, while also introducing important treasury efficiencies. Such schemes are helping to digitize cash flows and optimize collections with enhanced reconciliation capabilities.

The net result of these payment schemes will be to digitize the last mile in the remotest parts of the country, thereby facilitating a reduction in sales intermediaries and creating cost savings for all parties involved, along with significant additional data for corporate clients to leverage to better meet their clients’ needs.

India is a stellar example of the financial services industry leading the evolution of the digital economy and helping to positively impact the priorities of cash management in organizations.

Digitizing Commerce through Faster Payments

Instant payments are rapidly becoming the new normal across the world. When coupled with Application Programming Interface (APIs), instant payments are unlocking exciting new opportunities for tremendous payment efficiency. More and more companies are embracing this technology to create new products to supplement their business and/or delight their customers with faster turnaround on financial fulfilment.

As more customer touchpoints become digitized, there is an increasing need for frictionless collections at these points-of-commerce, as well as instant refunds and payouts that ensure consumer satisfaction. In countries in Asia where credit card penetration is low and cash usage is high, instant payment solutions present a simple and easy-to-use option for consumers that is both safe and convenient. Even in countries with higher card penetration, instant payment options are proving attractive to businesses because they present a lower cost payment method.

Redefining Payments and Receivables with Citi’s Instant Payments Suite

As the payments space continues to evolve, companies are seeking innovative solutions to help them manage their overall cash management processes. Banks are being driven to focus on real-time and end-to-end digital operating models, and added value in their payments and receivables services including embedding intelligent, user friendly and data driven capabilities to deliver great client experience. This industry shift toward speed and the end-user experience means banks must not only respond to changing customer demands, but must also anticipate future needs given the increasing range of products and services that are being sold digitally. An added emphasis on enhanced visibility and traceability of a transaction, along with elevated transaction data capabilities, make real-time and instant payment offerings attractive for our clients’ evolving business models.

A prime example of how instant payments is transforming the payments landscape can be found with a prominent asset management company in India, which was able to enhance the mutual fund redemption experience for their customers by leveraging Citi’s API-based instant IMPS payments.

Now, when customers request redemption of funds on their website or mobile app, those funds are credited to their account in real-time — even outside of normal banking hours. In a short span of time, the company has successfully processed over one million transactions through this channel, thereby differentiating their offering in a highly competitive market by offering an excellent value-added service which encourages sales growth.

With the help of new instant payment channels in India and across the rest of Asia, Citi is enabling its corporate clients to instantly payout and collect funds from customers on 24x7 basis, powering their digital business models and enabling sales growth. Corporates are able to transact with unprecedented efficiency with the help of Citi’s global APIs and scalable technology platforms.

India was the first region where Citi launched Request-to-Pay as a collection solution powered by APIs that allow consent-based pulling of funds from customers’ bank accounts at the time of the transaction. Since 2017, corporates across industries such as eCommerce, payment intermediaries, airlines, insurance, and non-bank financial institutions have been leveraging Citi’s UPI solution for round-the-clock, cost-effective digital collections.

Instant Payments Case Studies

Another example of instant payments-in-action can be found with a major air carrier, which uses UPI to accept ticket purchases made directly through their call center. The airline can pull a payment from the customer’s bank account using UPI which the customer can approve in real-time through their mobile device. This makes it easy for the consumer to complete the transaction by verifying the request with a push of a button on a consumer banking app, elimination of the requirement to enter credit card details, and saves the airline interchange costs.

In the case of a popular ride sharing service, drivers expect to be paid on demand at the end of their shift, but the company’s centralized cross-border payment solution was not set up to accommodate such rapid payments. By shifting to an instant payment solution, the company was able to issue payments on-demand to drivers, thus eliminating costly cross-border fees, and ensuring funds would be available when drivers needed them around the clock, encouraging drivers to continue to take bookings for the ride sharing service.

Instant payment options are also on the rise throughout Asia where credit card penetration is low and mobile wallet adoption is high. Digital payments are expected to be the dominant channel for C2B transactions in Asia Pacific going forward.

The proportion of large Asian corporates which completed or are implementing APIs with their banking partners have increased from 17 percent in 2018 to 37 percent in 201910. The COVID-19 outbreak is expected to further accelerate the digitization of cash and payments going forward across Asia, given the increasing importance of our institutional clients’ ability to offer access to their products and services online to their consumers, plus the physical challenges of processing cash and checks and its impact on business continuity. Digital banking and digital payments have become a requisite for our clients to operate.

Fueling this trend, Citi has enabled corporates to make real-time payments through multiple channels including platform-agnostic payment initiation APIs that can automate the end-to-end payment journey, as well as traditional digital methods, such as host-to-host, online banking and SWIFT FileAct. This has delivered exponential value to B2C businesses like eCommerce, mutu

The instant payment suite is enabled by Citi’s sophisticated global APIs that provide value-added services, such as transaction status checks and queries, on-demand account statement visibility, credit/debit notifications, and other services that seamlessly integrate with clients’ systems to digitize treasury and finance processes.

At Citi, we continue to develop next-generation technologies for the wide range of highly successful digital native companies we have the privilege to serve, as well as for companies that are initiating their online and digital business models. Our strong culture of innovation supported by our innovation labs at Citi is helping us prototype new ideas quickly and share with our clients early to incorporate feedback to enhance client experience. We also have a very strong track record of successfully partnering with fintech companies to co-create and deliver integrated solutions for corporate clients that leverage in-house APIs and instant payments channels in a common global platform. In this way, we are digitizing funds flows in a manner that bolsters our clients’ customers’ experience, while also delivering sales growth, cost efficiencies and end-to-end digitization for corporate treasuries.

1 We are social Hootsuite, Statista, 2019

2 eMarketer, May 2019

3 Global payments report, Worldpay, 2017

4 Credit card penetration in the Asia Pacific region by country, Statista, 2018-2019

5 RBI Publication: Assessment of the progress of digitisation from cash to electronic, Feb 2020

6 Government of India and NPCI Notification, Dec 2019

7,8 NPCI Product Statistics

9 NPCI and RBI Product Statistics

10 Asian Corporate Finance: Social Distancing boosts digital in corporate banking, Greenwich Associates, 2020