6. Pricing Policy

Several pricing models can be implemented for instant payment systems, each with distinct implications for financial inclusion, market adoption, and system sustainability. The selection of an appropriate model should be guided by market conditions, policy objectives, and the maturity of the payment ecosystem. Below is an overview of the primary pricing models applicable to instant payment systems.

1. Processing Fee Models

Processing fees are charges imposed by the payment system operator on participating financial institutions and payment service providers for executing, clearing, and/or settling instant payment transactions. While these fees are not directly visible to end users, they significantly influence the cost structure of the system and can affect end-user pricing. Several processing fee models are commonly used, each aligned with different policy goals and institutional contexts:

• Cost-Recovery Model: Fees set to recover the operational costs of the central infrastructure without generating profit. This approach focuses on system sustainability rather than commercial returns, often employed in public infrastructure models. It requires transparent cost accounting and regular review to ensure continued alignment with actual operational expenses.


• Utility Pricing Model: Treats the payment system as a public utility with regulated pricing. Fees are determined through regulatory processes that balance system sustainability with public interest objectives. This model typically involves significant oversight and may include cross-subsidization between different services or user segments.


• Volume-Based Pricing: Offers discounted per-transaction fees for higher volumes, incentivizing greater usage. This approach can drive adoption while reflecting the economies of scale in payment processing. It must be carefully structured to avoid disadvantaging smaller institutions that may have lower transaction volumes.


• Subscription/Membership Model: Charges fixed periodic fees for participation in the system, potentially with additional per-transaction fees. This model provides predictable revenue for system operators and can reduce per-transaction costs for high-volume participants. It may include different tiers based on institution size or expected usage.

The selection of processing fee models should consider market structure, policy objectives, and the institutional framework of the payment system. In many successful instant payment implementations, processing fees evolve over time, often starting with subsidized or minimal fees to encourage adoption before transitioning to more sustainable models as transaction volumes increase.

2. Interchange Fee Models

Interchange fees are payments made between financial institutions typically from the receiving (acquiring) institution to the sending (issuing) institution to compensate for the costs of processing and risk management in a transaction. While interchange is most commonly associated with card-based systems, some instant payment systems may incorporate similar fee mechanisms to balance commercial incentives between participants.

• Simplifies the fee structure and reduces settlement complexity


• Creates a balanced ecosystem where all participants bear their own costs


• May not adequately compensate sending institutions for their investments and risks

• Provides predictable compensation for sending institutions


• Simple to implement and understand


• May not reflect the varying costs associated with different transaction types

• Can be tailored to reflect different cost structures and risk profiles


• Allows for more nuanced incentive structures


• Increases complexity and may create market distortions

When considering interchange for instant payments, it's important to recognize fundamental differences from card systems. Instant payments typically have lower fraud rates, different risk profiles, and distinct value propositions compared to cards. Therefore, interchange models should be specifically designed for instant payment characteristics rather than simply adopting card-based approaches.

In many instant payment systems, particularly those focused on financial inclusion, zero or minimal interchange is preferred to reduce overall system costs and simplify implementation. However, some form of interchange may be necessary to incentivize participation and investment, especially in markets with significant imbalances between sending and receiving institutions.

3. End-User Fee Models

End-user fees are the charges directly paid by consumers and businesses when using instant payment services. These fees are a critical component of the overall pricing strategy, as they directly influence user behavior, adoption rates, and long-term engagement. Designing end-user fees with clarity, fairness, and inclusivity in mind is essential to achieving widespread usage—particularly in low-income and underserved segments. The following are the main fee models commonly applied in instant payment systems:

• Advantages:


• Simplicity: Easy for users to understand, every transaction costs the same, which helps build trust and reduces confusion.


• Predictability: Users know in advance what they will be charged, allowing for easier budgeting.


• Ease of implementation: Operationally straightforward for providers to manage, track, and audit.


• Disadvantages:


• Regressive impact: The same fee on both high- and low-value transactions means small-value payments incur a proportionally higher cost.


• Usage deterrence: May discourage users from conducting frequent or everyday micro-transactions, especially among lower-income groups.


• Application Context:


• Most effective in markets where most transactions fall within a narrow value range or where instant payments are used mainly for medium- to high-value transfers.

• Advantages:


• Equity in pricing: The fee adjusts according to transaction size, making it more affordable for low-value users.


• Encourages inclusion: By keeping costs lower for small transactions, it supports usage among lower-income or financially vulnerable users.


• Revenue alignment: Provider revenue scales naturally with transaction size, aligning with usage value.


• Disadvantages:


• High-value disincentive: As transaction amounts grow, so does the fee, potentially deterring larger transfers.


• Lack of transparency: Users may not know the final cost until after the transaction value is entered, which may reduce confidence and trust.


• Application Context:


• Suitable in diverse economies with wide transaction value ranges. Can be attractive for promoting usage in early stages

• Advantages:


• Balanced approach: Provides a middle ground between the predictability of fixed fees and the fairness of percentage-based models.


• Market customization: Fee levels can be tailored to accommodate different segments (e.g., individuals, small businesses, government-to-person payments).


• Supports both affordability and cost recovery: Encourages small-value use while ensuring that high-value transactions contribute adequately to system sustainability.


• Disadvantages:


• Communication complexity: More difficult to explain to users, especially those with low financial or digital literacy.


• Behavioral thresholds: Users may intentionally limit transaction values to remain within lower tiers, which can distort natural transaction flows.


• Application Context:


• Well-suited for mature or transitioning markets with diverse users and payment use cases. It allows for flexible adaptation to shifting payment volumes and user preferences.

When implementing any end-user fee structure, it is essential to determine who bears the cost—the sender, the receiver, or both. Many inclusive payment systems follow a “sender-pays” model, ensuring that receiving funds is always free to encourage widespread adoption among individuals and small merchants. Additionally, targeted measures such as fee waivers, subsidies, or tier-specific discounts can be employed to support vulnerable groups or promote usage during early adoption phases. These strategies not only enhance financial inclusion but also help build transaction volume and trust, paving the way toward long-term system sustainability.

This section outlines the essential components for creating a robust framework for pricing within instant payment systems. It covers how fees are set, disclosed, calculated, and enforced, ensuring fairness and transparency for all participants and end-users.

1. Pricing Governance

Scheme rules should establish clear processes and responsibilities for setting, reviewing, and adjusting fees.

• Pricing Governance Structure: The scheme rules should define the governance bodies responsible for pricing decisions, including their composition, authority, and decision-making processes. This typically includes a dedicated pricing committee with representation from diverse stakeholders, including smaller institutions serving underserved communities.


• Fee Review Mechanisms: Rules should establish regular review cycles for all fee components, with clear criteria for evaluation. These reviews should consider system costs, market conditions, participant feedback, usage patterns, and financial inclusion impacts. The process should include consultation with stakeholders and transparent communication of findings.


• Fee Change Procedures: The rules should outline the process for implementing fee changes, including notice periods, communication requirements, and implementation timelines. This provides predictability for participants and allows them to adjust their business models and customer offerings accordingly.


• Dispute Resolution for Pricing Issues: Mechanisms should be established for addressing disputes or concerns related to fee application or calculation. This includes clear procedures for raising issues, timeframes for resolution, and escalation paths if needed.

The Scheme rules should establish comprehensive disclosure requirements that ensure all participants understand their obligations and rights regarding fees.

• Participant Disclosure Requirements: Rules should specify what fee information participating institutions must disclose to the scheme operator, including their end-user fee structures, any surcharges, and special arrangements. This enables monitoring of compliance with scheme principles and assessment of the overall fee landscape.


• Consumer Disclosure Standards: The scheme should establish minimum standards for how fees are disclosed to end-users, including timing, format, and content requirements. These standards should ensure that consumers receive clear, understandable information about fees before initiating transactions.


• Fee Comparison Requirements: Rules may require standardized formats for fee disclosure that facilitate comparison across providers. This promotes competition and helps users identify the most cost-effective options for their needs.


• Fee Change Notification Standards: The scheme should establish minimum notice periods and communication requirements for fee changes. This includes both notifications from the scheme to participants and from participants to end-users.

Scheme rules should establish standardized approaches that minimize administrative burden while ensuring accurate and timely fee processing.

• Fee Calculation Methodologies: Rules should define precise methodologies for calculating each type of fee, including the data points used, calculation formulas, rounding conventions, and handling of special cases. These methodologies should be documented in detail to ensure consistent application.


• Billing Cycles and Processes: The scheme should establish standard billing periods, invoice formats, and payment terms for all fee types. This includes specifying whether fees are collected in real-time, daily, weekly, or monthly, and through what mechanisms (e.g., direct debit, separate settlement process).


• Reconciliation Procedures: Rules should outline processes for participants to verify fee calculations, raise discrepancies, and resolve billing issues. This includes access to transaction data and fee calculation details to support reconciliation.


• Fee Distribution Mechanisms: For interchange and shared fees, the scheme must establish clear procedures for distributing collected fees among participants. This includes timing, notification requirements, and handling of exceptions.

Scheme rules should establish robust compliance mechanisms and appropriate enforcement measures for pricing-related requirements.

• Fee Monitoring Framework: Rules should establish systematic monitoring of participant fee practices, including regular reporting requirements, spot checks, and analysis of transaction data. This monitoring should verify compliance with scheme rules and identify potential issues such as excessive fees or discriminatory practices.


• Violation Categories and Penalties: The scheme should define different categories of pricing violations based on their severity, frequency, and impact on users or system integrity. Corresponding penalties should be established for each category, ranging from warnings to financial penalties or, in extreme cases, suspension from the system.


• Investigation Procedures: Clear processes should be defined for investigating suspected pricing violations, including information gathering, participant rights, timeframes, and decision-making authority. These procedures should ensure fairness while allowing for timely resolution of issues.


• Appeal and Remediation Processes: Participants should have defined pathways to appeal compliance decisions and implement remediation plans for addressing violations. This includes clear criteria for successful remediation and processes for monitoring ongoing compliance.