Need for Speed: Are banks ready to face the instant payments revolution

Instant, swift and ubiquitous the age of real time payments is here. Is your bank ready?

If banks want to fit in and keep up, they need to be in the ‘Give it right now, need it yesterday’ mode. Yes, this is the era of instant gratification and it is the need of the hour to meet with expectations ‘on demand’.

What are some of the challenges that banks face while keeping up with the instant payments revolution?

Banks are under constant pressure to comply with the consumer. As per Oracle Financial Services recent research reports, banks are grappling with several internal issues such as

  • operational complexities
  • siloed structures
  • multiple payment processes
  • managing different messaging standards
  • disharmonized payments infrastructure

Processes that previously served customers only during traditional banking hours, now have to be used 24/7, 365 days. This is bound to overstretch the system and cause difficulties, hence banks are not equipped with the technology to handle them.

Which brings us to the next question: How will technology enable banks to deal with the instant payment revolution?

Instant Payments have taken the world by storm especially post Covid, and there seems to be no going back from here. As per KPMG research around real-time payment infrastructure post Covid, banks have to depend on path breaking technology infrastructure transformation to rise to the occasion and meet the ever increasing demands of their customers. It is an ever changing landscape that is hyper connected and is powered by increased digitalisation.

Oracle financial services guides the way to the decision makers in the banks in terms of the pointers that you must be wary of while transforming the payments infrastructure

  1. You should opt for a technology solution that is frictionless and offers real time payments processing and has settlement capabilities.
  2.  It should also be capable of supporting multiple payment types which can ultimately result in significantly lowering cost per transaction
  3. The solution should enable processing data at a lower cost and have reduced complexity. It should provide a universal plus data rich set of instructions for all payments and have seamless control over payments data for analytics and fraud prevention.
  4. The technology solution should be built to provide a real time experience to customers and have provisions for SEPA and instant credit transfer. Moreover, the system should allow for faster reconciliation, instant credit availability, better financial control and accuracy in liquidity. All the aforementioned factors help in treasury management and improve credit risk.
  5. It should provide for a global payments transaction processing by being able to support Multi-Bank, Multi-CSM, Multi-Currency accounts.
  6. The technology solution that you choose to deploy in your bank should be able to process multiple modes of payment, cross border payments and fund transfers between financial institutions based anywhere in the globe. It should also take into account high value domestic payments.
  7. Finally, the solution that you wish to deploy should be able to handle bulk payments. It should allow tracking of specific payments by using the batch ID during the entirety of the lifecycle of the payment.

Adapt or perish; Why are some banks reluctant to overhaul their existing payments structure

  • What happens if banks don’t adapt to the fast changing landscape, they will most definitely perish, but despite the looming fear of going out of business, many banks are holding back. Most of them understand that modernization is the need of the hour but increased digitalization brings forth a unique set of challenges which makes banks weary and reluctant to adopt them. The idea of rip and replace might be too overwhelming for banks to swallow and it can also be too risky and cost prohibitive. For banks to take the next step, they need to adopt a layered approach. A layered approach is that which allows banks to provide for zero latency. Banks can consider an approach which allows for ad hoc/customization or implement a package of modules that add the functionalities of instant payments to legacy systems from a larger payments hub solution. This can be instrumental in giving way to modernization by slowly phasing out old infrastructure as and when there is enough budget and resources.

    Fraud Prevention is another issue which deters banks from adopting instant payments solutions. Money laundering and financial crimes is on a rise and with the advent of digitalisation these crimes have increased to a great extent. Banks have to grapple with them on a daily basis and this acts as a big deterrent when it comes to adopting technology solutions for instant payments. But these challenges can be taken care of once the banks have a robust AML platform in place and fraud detection will cease to be a pain point.

What is driving the growth of Instant Payments?

 According to researchers at Deloitte there are 6 pillars which drive the growth of real time payments.

  • Common customer expectations
  • Common merchant expectations
  • Technology innovation
  • Globalization
  • Regulatory pressure
  • New players and business models

These pillars have gathered a distinct relevance and importance especially after the accelerated growth in adoption of instant digital payment modes by consumers post Covid due to social distancing and lockdown. Banks, regulators and governments are expected to transform the overall payment ecosystem based on these pillars.

In summary: The road ahead

The US Federal Reserve System has aptly come out with five desired outcomes for an improved instant payments system

  • There is a need for speeding up processes, backed up by faster electronic solutions
  • Security needs to be of great priority and banks need to step up and evolve in ensuring the same
  • Efficiency needs to be maintained to ensure innovation and deliver value to consumers
  • Cross border payment need to be made convenient and cost effective
  • Payment systems need collaboration and backed by collective participation

Post Covid, these outcomes seem to have fetched a renewed relevance and perspective across the globe.


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