As the U.S. continues down the path (a meandering path at that) towards real-time payment capabilities, it strikes me that we are not taking enough advantage of what other countries have learned from their experiences, some of which include decades worth of positive and negative results. No, not everything is going to apply. The U.S. market is different. Case in point; the U.S. migration to EMV was not as smooth initially as had been promised by those who had gone before. But ignoring real-time payments implementations globally also means missing out on some beneficial lessons.
A blog in Finextra takes a look at pricing for real-time payments in Europe. It provides an interesting look at a variety of approaches as how pricing can drive adoption. Here are some excerpts from that blog:
All over Europe, banks start rolling out Instant Payments, so we have a few reference points when it comes to pricing. That is: for retail customers, as this is the only segment where regulation imposed sufficient transparency in the cost of daily banking.
Pricing of daily banking remains very country specific. There are countries with a rather high cost of banking, like France, UK, Italy. On the other hand, you have countries like Belgium where the cost of daily banking is a lot more modest or even free of charge in some cases.
This makes it very difficult to extrapolate a pricing strategy based on what you can observe abroad. Nevertheless, these different strategies may help you in the creation for a better vision on the pricing of your instant payments.
You can call it value pricing or relative pricing. In essence, it is about charging a % on the transaction amount, eventually with a minimum and a maximum price.
The idea is that a customer is more willing to pay for a higher value transaction. The risk is also bigger of course, so there are rational arguments for this kind of pricing.
The advantage for a bank: you bet on the lower value transactions and this helps you test the system before going full-fledged. You build a proper liquidity history before forcing every transaction through the Instant Payments engine.
This price setting is often used because people tend to be willing to pay more for a higher value transaction: you don’t want to pay €0,60 for a transaction of €6, but it is no issue for a transaction of €10,000.
You pay a fixed cost, a fee per transaction, very transparent, very clear. For low-value transaction: sometimes very painful.
The advantage for a bank: you can charge high in the beginning, to test the model. Tweak it afterward, depending on your Instant Payment ambitions (or as a reaction to your competitor’s ambitions).
This seems to be the way to go in France. Keep in mind this is, overall an expensive country for your bank activities. At the start, the issuing banks charged on average €0,8-€1 per transaction.
By offering Instant Payments free of charge, you stimulate consumers to adapt to the bright world of instant. You do everything to lower the regular payments to a degree where you can simply stop processing them.
That is the direction The Netherlands like to go. Today they have a fast payments product, which is charged, with marginal usage.
Today the banks are rolling out Instant Payments, this will be free of charge. At least that is what ING, Knab and De Volksbank communicate.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group