This is the first in a three-part series on the rise, evolution, and future direction of real-time payments.

Eight years ago, the Indian government pulled off something no one thought it could: almost overnight (at least by the standards of the financial world), it launched a real-time payment system that covered the entire country and transformed the way people paid for everyday transactions. Today that system—the Unified Payments Interface (UPI)—has more than 350 million users and has turned into nothing short of a revolution in the payments world. 

It was also one of the most successful moves in a worldwide surge of national real-time payment methods (RTPs), which allow for instant settlement of funds between parties. 

A UPI payment has just a few steps. A user typically scans a UPI QR code at the store through a UPI-enabled app, inputs the amount that they want to pay, and clicks “enter.” That’s it. The business on the other end is able to confirm the payment and receives the funds instantly. Thanks to this simple system, millions of people across India went from having to lug around wads of rupees to being able to pay for anything with only their phone. In just a few years, India went from almost 90% of transactions being in cash to less than 60%. 

When UPI launched in 2016, RTPs barely existed as a consumer payment option. As recently as five years ago, less than 5% of people in Spain used Bizum, the country’s RTP; today the number is over 50% and growing fast. Similar stories are unfolding in Brazil—where 150 million people now use Pix—and Thailand, where more than 70% of people use the country’s RTP, PromptPay.

The rise of RTPs has been so rapid that it’s easy to miss how many factors had to come together to make it possible. Payment methods are tightly woven into the economic and social fabric of a country, and new ones don’t take hold easily. In most countries, the dominant means of exchange has rarely pivoted—and yet in many places around the world, it’s changing right now with RTPs. 

Along with the rise of RTPs, we’re seeing a Cambrian explosion of payment methods around the world, including expanded use of buy now, pay later methods and cryptocurrencies. But what does it take for a new payment method to really take hold? And why have RTPs been so immensely successful so quickly? 

Answering these questions is more than just a fun intellectual exercise. Payments underpin our economy and govern much of our day-to-day lives. The introduction of credit cards, for example, fundamentally changed the spending behavior of American consumers and created entirely new industries, from credit bureaus to loyalty programs. The rise of real-time payments could have similar far-reaching consequences. 

By talking with Stripe users and partners, and through our own analysis, we’ve found that there are three ingredients that have to be present to successfully introduce a new payment method: 

1. Infrastructure that provides access to funds and a way to move money
2. Motivated consumers who want to change the way they transact
3. Buy-in from businesses that have to embrace accepting a new form of payment

You can think of this as the recipe for popularizing a new payment method. And to understand how it really works, it’s helpful to back up a bit—to 50 years ago, when the underlying infrastructure for real-time payments was first set in place.

The infrastructure came first 

Real-time payment methods such as Pix and UPI have two basic components. The first is an interface, such as an app, that allows users to make instant payments. The second is the underlying infrastructure, or payment rails, that facilitate the actual money movement. 

The infrastructure has been around for a long time. The earliest real-time payments system was Zengin, released in Japan in 1973. Many other countries followed suit in the early 2000s, such as Mexico with SPEI in 2004 and the UK with FPS in 2008. Traditional bank transfers often take days to settle and that creates risks (namely credit and liquidity risk) for the parties involved. Central banks invested in new instant bank rails as a way to reduce those risks. All of these systems allowed for nearly instant clearing and settlement between bank accounts. But none of them were easy for consumers to use. They required trips to the bank, interactions with tellers, and more paperwork than was worth it for most transactions.

The landscape started to shift—slightly—in the early 2000s, when online banking made it possible for you to log in to your bank account and initiate bank transfers on your own. But the process was still cumbersome. It required the careful inputting of long routing and account numbers, which carried the fear that the money wouldn’t end up where you wanted it to go, and it could only be done from your home computer, which made it useless for most transactions. For this reason, cards remained the dominant payment methods in many economies; they served as an overlay for bank rails that provided an on-the-go solution to many of the functional limitations of bank transfers. 

But then in the early 2010s, a series of cascading changes began making it possible for consumers and businesses to tap into this real-time money movement infrastructure.

RTPs take off where the interests of banks, consumers, and businesses align 

The first and most obvious change was the spread of smartphones and the ensuing rapid adoption of mobile applications, including mobile banking. This made it possible for most people to trigger bank payments anywhere, at any time. But technological progress wasn’t enough by itself. For real-time payments to take off, three key groups needed to rally behind them: banks, consumers, and businesses. Each had its own interests and incentives.

Banks

Even if consumers had access to mobile banking, that didn’t mean that they were going to use bank transfers to pay for things. To make that leap from theoretically possible to practically useful, banks needed to make RTPs seamless to use. That might mean allowing people to send transfers to aliases (such as phone numbers) rather than entering long routing numbers, or investing in marketing to teach their users about real-time payments. These changes required an investment on the banks’ part. In some markets, banks were motivated to do this to counter the rise of digital wallets, which they worried would intermediate their relationship with their users. In other countries, they did so to encourage the digitization of payments.

For example, in 2005, the Swedish government decided to shift the cost of handling cash onto commercial banks to reduce costs. The banks responded by deciding to push Swedish people toward digital payments. Initially, the banks tried to incentivize the use of cards, but that still left millions of peer-to-peer (P2P) payments occurring in cash. So, in 2012, Swedish banks came together and developed Swish, a mobile app that allows instant P2P bank payments, thereby creating the country’s first real-time payment method.

Consumers

Once banks made RTPs easy to access, consumers were quick to embrace RTPs as digital alternatives to cash. Sending funds to a phone number or an alias rather than using a routing number made bank transfers quick, easy, and something that people could do from anywhere. They also allowed users to avoid the hassle and risks of carrying cash, such as losing money or being robbed. Peer-to-peer real-time payment methods sprouted up everywhere. In many places they even became their own verbs (e.g., “to TWINT” in Switzerland).

Businesses

Businesses quickly perceived their own advantage in accepting real-time payments. Sellers at farmers’ markets or other small businesses were the first to come around. Bank transfers typically have lower processing costs than credit cards and lower fraud relative to traditional banking methods, and they don’t require card terminals or cash registers—making them easy to implement. For larger businesses, the switch was slower because the barriers to adoption were higher: they required more features than small sellers did to integrate these payments into their existing systems and manage reconciliation. They came around due to lower cost, lower fraud risk for businesses (transactions are typically irreversible with no risk of chargebacks), and popularity with consumers.

The NIBSS Instant Payment (NIP) system, which launched in Nigeria in 2011, shows how benefits for retailers can help drive real-time payment adoption. Prior to NIP, most businesses relied on cash because they valued the immediate access to funds. For millions of small business owners in Nigeria, the difference between getting your money today or in a few days could be the difference between staying afloat and going under. With NIP, businesses can now get both immediate access to funds and avoid the risk of carrying cash. They can also transact safely across larger distances, no longer having to move cash across the country, which was expensive and often unsafe.

Central governments can also impose the necessary conditions

Real-time payment methods could offer something for everyone—banks, consumers, and businesses—but all three constituencies had to move together in order for anyone to fully benefit. And in some important ways, their incentives were not fully aligned. For example, banks typically earn significant revenue from card transactions and some worried about losing these fees.

In many countries where consumer RTPs haven’t emerged naturally, governments have led the way. This is what happened in Brazil, India, and Nigeria, where the dominant RTPs are all government supported. These governments viewed them as a broadly beneficial way to lower payment costs, increase financial inclusion, reduce cash circulation, and minimize reliance on foreign payment networks such as Visa and Mastercard.

As a result, they and other governments have upgraded the infrastructure needed for RTPs and often mandated their adoption. The Brazilian Central Bank actually built the country’s RTP system, Pix, from scratch and mandated banks offer it to their customers, even going so far as to dictate how Pix would show up in mobile banking apps. Pix is more convenient than cash, so consumers adopted it for peer-to-peer transactions, as well as in ecommerce, where it is easier to use than Boleto—a voucher-based payment method with deep roots in Brazil. Businesses also found Pix to be faster and cheaper than Boleto and less fraud-prone than debit cards. Five years in, Pix is the largest payment method in the country.

The recipe for a new payment method

From the multidecade evolution of RTPs, we see that it takes three main ingredients for a new payment method to succeed:

1. Infrastructure: For RTPs’ success, this was accomplished via banks providing easy access to bank balances and instant bank rails.
2. Consumers: A hook that motivates people to change the way they make a purchase is needed. RTPs offered this hook by allowing easy peer-to-peer transfers.
3. Businesses: A pitch that motivates businesses to reconfigure their existing processes is necessary. With RTPs, businesses were attracted by the promise of lower-cost payments.

We can apply this recipe to understand the emergence of other types of payment methods, such as buy now, pay later methods (BNPLs) that have surged as part of the general proliferation of payment methods over the last decade:

1. Infrastructure: BNPLs leverage debit card networks.
2. Consumers: BNPLs provide people access to interest-free credit.
3. Businesses: BNPLs bring in new customers who don’t have access to conventional credit cards, and can increase conversion and boost revenue.

We can also use this lens to understand why RTPs have taken hold in some places and struggled to catch on in others. In the next installment of this series, we’ll look at whether RTPs can continue to stay relevant for users in the face of competition from wallets, BNPLs, and other payment methods. To answer this question, we’ll take a look at how RTPs are expanding their value proposition, with things like in-person payments, credit, and recurring purchases.

The rise of real-time payments plays an important role in Stripe’s product roadmap. Learn more about how to toggle on supported RTPs in your priority markets.