What is an Instantaneous Payment Platform and why does it matter?

When millions of people around the world entered the Covid-19 lockdowns in March last year, few could have imagined just how much the protective measures would transform the way we live, work, study and pay for goods and services.

As we settled into our digital lives, one of the biggest transformations to take place was the acceleration of contactless payments as we moved away from using cash for hygiene reasons.

Fast-forward to today and contactless payments have become the norm, driven by a combination of factors that not only includes the pandemic, but also the fast-growing segment of digitally savvy youth, a global increase in smartphone ownership and skyrocketing e-commerce sales.

What is interesting, however, is that numerous studies over the past year have found that consumers will continue to embrace contactless payments even after the pandemic eases and the global economy fully reopens.

This change in consumer habits is reflected in a recent report by UK-based Juniper Research, which projects that consumer spending through digital wallets will nearly double to $10 trillion by 2025, up from $5.5 trillion last year.

Meanwhile, another survey by moneytransfer.com, which collated YouGov data to rank 21 countries more likely to adopt a cashless economy, found that consumers in India, the UAE and Indonesia were the most likely to opt for digital payments, which is in line with Dubai’s push to become a cashless society.

Despite the accelerated adoption of contactless payments over the past 16 months, the sector continues to face numerous challenges, including the time it takes for digital payments to be sent, which leads to a delay in businesses being paid on time and the release of liquidity into economies.

And this is where the Instantaneous Payment Platform (IPP) comes into play. Already adopted by more than 50 countries, IPP is an agile, flexible platform that allows digital payments to be processed from payer to payee within five to 10 seconds at any time of day or night, every day of the year.

Considered a game-changer for businesses, government and consumers, the IPP foundation is built on the open banking concept, in which banks open up their application programming interface (API) to give third parties – typically the burgeoning FinTech sector – access to their services to allow instant payments.

There are a number of steps banks must take to safeguard a smooth transition to IPP that encompasses not only banking regulations, but also the creation of a robust platform to ensure a secure operating environment.

IBM’s Cloud Integration Expert Labs team, for instance, works with banks to provide a high level of availability and comprehensive disaster recovery to ensure the smooth transition to its IBM API Connect platform, which allows banks to securely manage their API ecosystem across multiple clouds.

Migrating to an open hybrid multi-cloud environment helps banks to balance innovation with strict security requirements during a time of rapid change. Cloud-based infrastructure, such as IBM Power Systems, can build a strong foundation and prepare banks to embrace innovation in a volatile environment.

But what does IPP mean for businesses and consumers? The platform enables a greater amount of data to be captured during a transaction, resulting in companies and people being better understood by the institutions that serve them, leading to an enhanced customer experience. Businesses will receive payments more quickly, which then trickles down into the economy. It also gives banks more data about businesses, so they could, for example, offer lending to SMEs against future receivables.

In the UAE, banks are already recognising the importance of this data to release more liquidity into the economy and are offering, for example, business loans against point of sales receivables to merchants. Considering the current Covid-19-induced global recession, this could be a game-changer for a business struggling to stay afloat during difficult times.

For consumers, it also means that digital payments are much quicker – everything from paying their bills to government services, international remittances and online shopping.

This all results in an improved customer experience as the exchange of data between entities can, ultimately, lead to better financial services. But possibly the biggest positive for consumers is that widespread adoption of IPP will significantly reduce the risk of cyberfraud thanks to the robust security the platform offers. And for consumers, that security is priceless.