Who Pays for Instant Payments?

This brief delves into the complex and evolving pricing regimes underpinning instant payment schemes, examining who currently pays and who should pay for instant payments while weighing the implications of different approaches.

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AUTHOR

David Porteous

Topics

This brief, authored by David Porteous, Founder and CEO of Integral: Governance Solutions, is part of a series of ongoing explorations of digital public infrastructure (DPI) supported by the Global DPI Insights Community.

Executive Summary

Pricing regimes for instant payments are both complex and evolving; more recent instant payment schemes (IPSs) are more likely to have mandated both free-to-consumer payments and participation by categories of payment service providers (PSPs).

Free-to-consumer is not a new approach in payments; there are important precedents in the form of cash and credit cards and, more generally, digital freemium services. However, each of those instruments has a different revenue model and a trajectory of usage, which carry some insights for pricing instant payments as the newest category of payment instrument.

PSPs bear the bulk of the cost burden of free-to-consumer instant payments. In emerging market environments with free pricing mandates, the implication for greater inclusion and usage will depend largely on whether sufficient disruptive entrants have the financial and technical capacity to absorb acquisition costs in the hope of future monetization through cross-sell. Without this factor, and without other external subsidies, IPSs are unlikely to further financial inclusion much, even if they result in already included customers transacting more.

The pricing of instant payments is a strategic, dynamic choice that will have substantial effects on the pace, depth, and distribution of benefits from digitization. It cannot be copied from choices made elsewhere because it is context specific; nor can it be made once for all, because digital ecosystems evolve, nor can it be left to linger in uncertainty, since it usually affects investment decisions by a range of private PSPs. Rather, pricing of IPSs would benefit now from the greater attention that was accorded to the cost of cash and cards in the not-too-distant past in terms of the publication and analysis of more data about costs and usage.

Author

David Porteous

Founder and CEO, Integral

David is the founder and CEO of Integral: Governance Solutions, a boutique consultancy which supports enhanced collective decision making and change management in the areas of public private partnerships especially digital public infrastructure, ESG integration and tech startups.

David is a seasoned executive and entrepreneur who has founded or co-founded five organizations in the public and private sector but exited from an active role as each came to the next stage of their development. In addition to these five, David has advised on and been involved in the design, setup, executive management, and boards of a number of organizations engaged in digital development around the world.

Originally trained as an economist with a PhD from Yale University, David has domain knowledge in the areas of fintech and development finance, as well as edtech through his role as co-founder of the capacity building platform for professionals in the emerging world called Digital Frontiers.