In the rapidly advancing landscape of modern financial services, the concept of instant payments has emerged as a game-changer. As technology continues to reshape the way we interact with money, the days of waiting for hours, or even days, for a payment to clear are fading.
Instant payments, often referred to as real-time or immediate payments, have become a cornerstone of the digital economy, revolutionising the way individuals, businesses and even governments handle financial transactions.
The adoption of cloud and Payments-as-a-Service (PaaS) solutions is significantly reducing barriers to entry and easing the transition to new industry standards. Instant payment processing in the cloud enables banks to quickly transform and scale their operations to cope with increasing volumes and adapt to new customer, regulatory and industry demands.
A global view on instant payments
Around the world, some 30 different countries are enabling instant payments. Recent research from Datos Insights, supported by Finastra, indicates that instant payments is an important area of growth and innovation within the commercial banking space. However, 76% of respondents indicated that legacy payments systems are an obstacle to rolling out these services.
Finastra’s Barry Rodrigues
Additionally, experts predict that 80% of the payment volume worldwide will use ISO 20022 standards by 2025, according to Swift. This new messaging standard is accelerating the adoption of instant payments, as it is used for services such as the UK’s New Payments Architecture (NPA) and the US FedNow service, to support seamless transactions in real-time.
In Europe, the EU Commission has proposed legislation that mandates all payment service providers to offer instant payments in Euros at any time of day, every day, using TARGET Instant Payment Settlement (TIPS).
Instant payment services in the APAC region are also accelerating. While Japan launched the world’s first real-time payment network almost 50 years ago, today countries like the Philippines – which have significant unbanked and underbanked populations – are leapfrogging the card age and moving straight to digital wallets. Even more recently, the launch of the UPI-PayNow linkage enables users from India and Singapore to make and take payments instantly between both countries.
The role of ISO 20022
The new ISO 20022 standard for payment messaging, which came into effect in March this year, aims to bring profound benefits. Ultimately, it will enable the end-to-end processing of payments across domains and geographies that currently use vastly different standards and information formats.
Although banks aren’t mandated to adopt the standard until November 2025, migrating early provides access to richer, more structured data sets sooner, which will help banks automate processes, increase efficiencies and enhance straight-through processing.
Beyond regulatory requirements, banks should welcome this improved access to quality data. It gives them the power to understand the purpose of a payment, the original source and who the beneficiary is, to provide better payment reconciliations. This not only ensures greater accuracy and operational efficiency, but is crucial in combatting fraud.
It also brings a better understanding of customer behaviour, meaning institutions can build better services and tailor different products to meet customers’ needs.
Real-time compliance
Banks are looking for end-to-end SaaS payment processing solutions that offer instant and flexible digital payments. Financial institutions are expected to provide frictionless, more affordable and direct access to a range of instant payment networks. Through open APIs, banks can quickly and seamlessly integrate specialist fintech services with the solution, such as for compliance with anti-money laundering (AML) or know your customer (KYC) requirements.
As we know, the introduction of any new payment rail brings new risks, and especially when that rail operates in real-time. It’s imperative that financial institutions provide both accurate and efficient compliance capabilities at a reduced total cost of ownership.
By pre-integrating AML and artificial intelligence (AI) transaction monitoring software, customers will reduce the time and risks of launching instant payment services. All the while, they will benefit from a new level of security, scalability and flexibility.
Services, such as Finastra Compliance-as-a-Service, helps banks take advantage of, and comply with, a range of instant payment infrastructures, while mitigating the increased risks of financial crime.
By delivering relevant value-added payment risk solutions as a service, banks will benefit through improved speed-to-market. Furthermore, they will stand to benefit from the ongoing evolution in enabling capabilities like AI and Machine Learning.
The rise of cloud-based solutions and PaaS is breaking down barriers, enabling banks to overcome the issues associated with legacy systems and to adapt more swiftly to evolving customer demands and regulatory requirements.
The rollout of ISO 20022 and growing demand for instant payments globally is poised to accelerate this revolution.
Barry Rodrigues is executive vice president, payments at Finastra
