S&P on Fintech: FedNow Lacks Catalyst for Success, Adoption of Instant Payments Choppy

S&P Global Market Intelligence, a leading financial research firm, has released a report on the state of the fintech industry, highlighting real-time payments as an opportunity that is experiencing varying levels of adoption depending on the jurisdiction.

According to the report, the rollout of FedNow, the US government’s initiative to enable instant payments and transfers, has the potential to create opportunities for both traditional and newer banking and payments providers. However, the report also notes that FedNow lacks a significant catalyst to drive widespread adoption.

The report reveals that approximately two-thirds of banking firms are open to partnering with fintech companies to provide improved core banking services. This suggests that there is a growing interest among banks to leverage fintech innovations to enhance their offerings.

Sampath Sharma Nariyanuri, a financial technology research analyst at S&P Global Market Intelligence, explains that regulatory incentives play a crucial role in driving bank participation in real-time payments initiatives. He notes that while FedNow may take time to gain traction due to the absence of strong catalysts, participants in the program could focus on areas such as earned-wage access, gig economy disbursements, insurance payouts, and just-in-time payments.

The report also highlights the growth of instant payments in emerging markets, such as India and Brazil, where legacy infrastructure is less of a hindrance. These markets are expanding beyond peer-to-peer transactions and are capturing payments flows of all kinds. In developed countries, the availability of traditional payment methods creates fewer incentives to migrate to instant payments. Nevertheless, instant payments are gradually replacing checks and older interbank payment systems.

Nariyanuri predicts that both banks and fintech companies will accelerate their efforts to offer real-time payments capabilities. Fintech firms, in particular, are already at the forefront of innovation, creating new ways to simplify transfers and payments and improve the checkout experience.

The report also provides insights into the global landscape of real-time payments. The UK leads in terms of the total value of instant payments, totaling $4,018 billion. However, the UK ranks third in terms of instant payments per capita, with 58 transactions per person. Thailand tops this category, with 207 transactions per person. India, on the other hand, leads in the total number of real-time payments, with 80 billion transactions.

In countries like India, Brazil, and Southeast Asian nations, the instant payment system is evolving beyond a simple bank transfer method. It is transforming into a QR code-driven acceptance infrastructure that supports all payment methods, including credit cards and digital wallets. This shift reflects the growing demand for convenient and seamless payment experiences across various channels.

In conclusion, S&P Global Market Intelligence’s report emphasizes the potential of real-time payments and the role they play in the fintech industry. While adoption varies across jurisdictions, regulatory incentives, partnerships, and technological innovation are expected to drive the expansion of real-time payments in the coming years.

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