Drivers, including changes in consumer buying behavior and the pandemic, have formed new purchase pathways; people and digital services, including digital entertainment, demand easier ways to transact. Payment systems follow the money but must have the right frameworks and technologies in place to ensure sales are faster, simpler, and more transparent.
Real-Time Payments (RTP) and mobile wallets have entered this brave new digital marketplace, revolutionizing financial transactions. However, the uptake of mobile wallets and RTP varies across countries. In some areas, wallet growth is impressive, but forces like Open Banking may disrupt and modify this landscape.
The shifting sands of the payments landscape beg the question: will RTP displace mobile wallets or vice versa, or can they be complementary?
Real-Time Payments or Digital Wallets?
The RTP model offers revolutionary benefits for all stakeholders, including super-fast merchant payments and a seamless customer experience. The market reflects this, with Grand View Research valuing RTP at $17.57 billion in 2022, showing a growth of 35.5% (CAGR) from 2023 to 2030.
But hot on the heels of RTP are ‘mobile wallets.’ The mobile wallet experience of payments offers benefits, including an exceptional customer experience.
However, the growth of mobile wallets is currently slower than RTP; Grand View Research expects slower and lower growth for mobile wallet payments, with a valuation of $6.2 billion in 2021 and a growth of 27.4% (CAGR) from 2022 to 2030.
As both systems show growth and value to stakeholders, will one outpace the other... or can they work in harmony?
Some examples of RTP and mobile wallets, in real-life, can help find the answer:
UPI
India’s UPI (Unified PaymentsInterface) is an RTP initiative of the National Payments Corporation of India (NPCI with 399 banks using UPI and a record 8.65 billion transactions in March 2023: a 60% increase on March 2022 figures.
Pix
Pix is Brazil's most used RTP-based payments system; at the end of 2022, Pix had 24 billion transactions and an average of 66 million daily operations. As of August 2022, 119 million people in Brazil used Pix, along with 8.5 million businesses.
On the side of digital wallets, Juniper Research predicts that 60% of the global population will use digital wallets by 2026. Research identifies Asia Pacific as driving this trend, using QR codes to facilitate growth. However, mobile wallets are also growing in regions where the banking infrastructure is less well defined, for example, Africa; according to the Global Findex Database, 2021, around 75% of mobile account owners in Sub-Saharan Africa used a mobile money account to make or receive at least one payment.
In China, Alipay and Tencent's TenPay (including WeChat Pay) are the two most prominent market players, holding 55.6% and 38.8% of the market, respectively.
Can RTP and mobile wallets be interoperable?
Clearly, both RTP and mobile wallets are disrupting the payments model and reaping the rewards. In the battle for payment domination, there is a notion of 'open loop' and 'closed loop' RTP. For example, Pix, UPI, and the U.S. FedNow are open-loop RTP systems. The difference between an open loop and closed loop system is that open loop RTP allows for interoperability between enrolled financial institution providers.In contrast, a closed system uses a single-tied provider. This interoperability may hold the key to a battle for supremacy or a happy synergy between RTP and mobile wallet payments.
However, standardization and market acceptance must happen for the latter to occur. Standardization across borders is already in progress, with messaging standard ISO 20022 in go-live from March 2023.
Interoperability is happening: an example being Union Pay International (UPI) and the state government of Sarawak, Malaysia; the system is based on an UnionPay QR code enabled on the state's official e-wallet Sarawak Pay to handle cross-border payments via the digital wallet.
Are RTP and mobile wallets a marriage made in heaven or hell?
“Digital wallet providers will look to adopt “open-loop” technologies and seek interoperability in order to benefit from (and not fall behind on) the ongoing globalisation of payment rails.” – PwC report
A 2022 report from ACI Worldwide “Prime Time for Real Time” found that more than half of global consumers now hold and use a mobile wallet. The report also stipulates that banks must modernize using the cloud to take advantage of RTP; the report continues, stating that RTP uptake will depend on a “suitable digital infrastructure, citing the important role of central banks as well as ease of use for consumers.
The Malaysia example shows that a combined force of open loop RTP and mobile wallets creates a powerful and complementary system. However, specific criteria, in industries such as digital entertainment and eCommerce will determine the uptake of this hybrid approach: in a December 2022 PYMTS survey, mobile wallets and RTP were two of the top five payment choices. However, an omnichannel experience is important for the total experience (TX) of the customer.
For businesses that are consumer-centric, such as eCommerce and digital entertainment, an omnichannel platform experience can expect a harmonized approach using the best of both worlds: open loop RTP augmented by mobile wallets can ensure a great TX.
Conclusions
With global cashless payment volumes set to increase by more than 80% from 2020 to 2025, according to a PwC report Financial Services in 2025, a parallel push for wallets and RTP will likely be part of a mosaic payments landscape.
The cashless society is already here, but more and more, people are finding their work and home lives merging with digital experiences. RTP and digital wallets provide a way to bring payments into that digital experience, improving the overall customer TX: as such, the whole may prove to be greater than the sum of the parts.
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