Tuesday, October 22, 2024
Real-time or instant payment networks are expected to add more than 167 million new account holders to banking systems, putting a notable dent in the segment of society known as the unbanked.
The World Bank estimated 1.4 billion adults worldwide lack access to traditional financial services, like bank accounts and credit cards. The majority of these individuals reside in developing countries in Asia and Africa. The outlier may be India, where real-time payment systems, particularly the Unified Payments Interface (UPI), and a government program that promotes mobile phone access to financial services to individuals who have been left out of the financial system due to geographical and economic barriers.
In the United States, the Federal Deposit Insurance Corp. estimates that 4.5 percent of households (5.9 million households) were unbanked in 2021.
The ACI report – Real-time payments: economic impact and financial inclusion – leverages data from 40 countries, revealing for the first time an empirical link between real-time payments and financial inclusion.
The research indicates that by providing consumers with access to affordable financial services, real-time payments drive economic growth and could help lift millions out of poverty. At the same time, real-time payments present significant new revenue opportunities for financial institutions.
"Real-time payments act as a powerful catalyst for economic growth and societal transformation in modern, digital economies," said Thomas Warsop, president and CEO of ACI Worldwide. "This research demonstrates how payments modernization presents a win-win proposition for everyone, including governments and banks."
Real-time payments improve overall market efficiencies by allowing for money transfers between consumers and businesses in a matter of seconds, rather than days. They also reduce transaction costs and formalize segments of the cash-based "shadow economy," which in turn increases revenue opportunities for financial services firms, ACI noted. Across all 40 countries studied, real-time GDP increased $164 billion in 2023, which is equivalent to the labor output of 12 million workers, ACI determined. Aggregated net savings for consumers and businesses are predicted to grow from $116.9 billion in 2023 to $245.8 billion in 2028.
The research showed a "positive empirical link between instant payments and financial inclusion." It indicated a boost in financial inclusion especially among three demographic groups: younger people (those between the ages of 18 and 24), women, and people in lower income groups (40 percent of the population with the lowest incomes). And it showed notable increases in profits for banks and other financial services firms.
The top five countries for financial inclusion uplift (i.e.: number of newly bank consumers) are Pakistan (where 63.5 million newly bank consumers are expected by 2028), Philippines (20.9 million), Nigeria (13.8 million) and China (13.8 million).
The top five markets for where banks and other financial services entities are expected to see boosts in profits are: Pakistan (where $173 billion in added profits are expected to be generated), Nigeria ($40.4 billion), Philippines ($28.7 billion), India ($24.6 billion) and China ($21.2 billion).
The impact from real-time payments is already clear in the United States, ACI noted, where businesses and consumers reaped more than $1 billion in savings in 2023. That number is expected to quadruple to $4.4 billion by 2028.
The United States is among the top 10 countries with the largest financial inclusion uplift from real-time payments is expected. The report estimates that 4.9 million Americans previously excluded from the financial system could have bank accounts by 2028. If that comes to pass it would almost wipe out the U.S. unbanked population based on the FDIC's estimate of 5.9 million unbanked households in the U.S.
"The research for the first time identifies a positive empirical link between instant payment and financial inclusion. As economies increase adoption of instant payments, reduction in transaction costs, enhancements to user experience and wider behavioral patterns are [directly] linked to increasing the share of the population engaging with financial institutions," said Owen Good, head of economic advisory services at the Center for Economics and Business Research, which ACI engaged to provide its forecasting. "Put simply, we continue to see that moving money in seconds rather than days rewards everyone associated with the transaction." 
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