This article is the first in a series of topical blogs that explore key insights from our Fintech2025+ report, which is available to download now.
In 2020, as the world dealt with the social and economic impact of COVID-19, the G20 prioritized a roadmap to improve the cost, speed, accessibility and transparency of cross-border payments. A key goal of this roadmap is for 75% of payments to reach recipients within an hour by the year 2027. In the time since then, real-time payments have boomed.
Real time payments are revolutionizing the digital economy and global finance with a 63.2% jump in digital payments transactions in 2022, expected to reach 511.7 billion in volume by 2027. This marks a 21.3% annual growth rate, suggesting that real-time payments will soon form 27.8% of all electronic payments, up from 18% in 2022.
Leading the adoption of real time payments, India recorded 89.5 billion payments in 2022, with Bahrain predicted to reach 83.3 payments per capita monthly by 2027. Brazil’s market grew by massive 228.9%, reaching 29.2 billion payments.
In contrast, by 2027, European nations like the Netherlands and Sweden are expected to rank high in adoption of real time payments, while major economies like the UK, US, and Germany are expected to lag, underscoring a global disparity in embracing this innovation in payments.
What’s driving real time payment growth?
Demand for real time transactions is increasing among consumers, driven by the convenience of digital services. Integration with mobile wallets and digital apps, coupled with the global surge in smartphone users—expected to increase by 1.5 billion to 6.4 billion by 2029— also facilitates this shift towards faster payment solutions.
86% of businesses with revenues between USD 500 million and USD 1 billion are already adopting this efficient payment method. These businesses have discovered that instant payments enhance liquidity and financial stability by unlocking working capital and reducing transaction times, ultimately contributing to economic development.
A study by ACI and Cebr highlights the positive impact of real time payments on GDP growth, projecting that a real time payments network system in New Zealand could elevate the country’s GDP by USD 271 million, or 0.1%, by 2027. Recognizing these economic benefits, the European Union has mandated instant payment schemes across its member states, and Brazil has rolled out its incredibly successful PIX system.
Governments around the world are recognizing that real time payments have the potential to be a key driver for economic growth.
GDP and the real time payments wave
One of the most direct ways real time payments contribute to GDP is by enhancing business efficiency in the payment process. Traditional payment systems are often slow, which impedes operations and cash flow management. Delayed payments result in working capital being caught in the financial system, offering no benefit to either the payer or the payee.
For a business this means cash flow struggles, for a consumer, perhaps an employee waiting on a paycheck, spending power is constrained in the short term. Both situations result in overall economic inefficiency. Real time payments provide immediate access to funds, which empowers businesses to reinvest more quickly, pay suppliers on time, and effectively their liquidity. Real time payment transactions ensure that businesses can reinvest more quickly, pay suppliers on time, and manage cash flow effectively.
In addition, traditional payment methods tend to involve processing fees, transfer fees, and other hidden costs which detract from business and consumer spending. Real time payments systems eliminate intermediary financial institutions from the transaction process resulting in both cheaper and faster payments. And lower costs mean more money is available for consumption and investment, the cumulative effects of which can be a substantial boost to GDP.
Instant payments versus the shadow economy
By enabling instant transfer of funds between bank accounts, real time payments also play a crucial role in GDP growth by mitigating the shadow economy, which comprises unreported and untaxed economic activities. This key benefit is gaining traction among governments around the world.
Real time payment systems enhance financial transparency through traceable transactions, which discourages the cash-based payments often associated with the shadow economy. Limiting reliance on cash makes it more difficult for businesses and consumers to engage in tax evasion and other unreported financial activities. In turn, this helps ensure more economic activities are recorded in the financial system, increasing the tax base so governments can collect more revenue to invest in services that stimulate GDP growth.
Long term, as more financial transactions are conducted transparently consumer confidence in the financial system is expected to grow which leads to higher spending and investment. In combination, all these factors contribute to a more robust and transparent economy that drives sustained GDP growth.
Fostering financial inclusion through immediate payments
Financial inclusion is another critical area where real time payments make a substantial contribution to GDP. RTP transactions are pivotal for financial inclusion, significantly benefiting remittances by providing instant P2P family support and lowering transaction costs, which currently average 6.25% globally, with UN Sustainable Development Goals set to reduce it to below 3% by 2030. Digital remittance costs, at 4.72%, are already lower, and real time payment systems could reduce these further by serving as a digital infrastructure.
Instant payments are crucial for immediate access to funds in emergencies, exemplified by situations such as global armed conflicts or natural disasters, where traditional fund-receiving methods fail. Instant payments from insurance companies enable quick recovery actions, such as contractor payments.
Prospects for an instant future
The future of RTP systems looks promising, with continuous advancements in technology and increasing adoption rates. Moreover, the integration of instant payments with other financial technologies, such as blockchain and digital currencies, could further its reach. The Federal Reserve’s FedNow Service is expected to further enhance the real-time payment landscape in the US, while The National Payments Corporation of India has been instrumental in launching the Immediate Payment Service (IMPS), which has revolutionized real-time payments in the country.
By enhancing business efficiency, fostering financial inclusion, reducing transaction costs, and promoting economic stability, the benefits of real time payments are transforming the financial landscape. As these systems continue to evolve and expand, their impact on global GDP is expected to become even more significant, paving the way for a more efficient and inclusive global economy.
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