Few Facts on Instant Payments

When it comes to transitioning to Instant Payments, how much is cost a barrier for banks?

Most banks process payments in batches at set times. 

By contrast, Instant Payments is an online system that requires 

- Continual input, 

- Process and 

- Output of data. 

Put simply payments must be processed as they are received.

This transition has major associated demands and challenges. 

• Banks need to both change their internal infrastructure to handle real-time as well as connect to the relevant national payment scheme or schemes. 
• Critically the implications aren’t purely technical – there are major operation requirements to ensure governance, not to mention business considerations around how the core system will power forward-looking products and services. 
• Sophisticated routing decisions have to be instantly taken, fraud and anti-money laundering checks now need to be handled instantly, and exception-handling processes require automation.

The problem for mid-sized and smaller banks is they only have a sledge hammer to crack a nut.

For example, large global banks may already have a payment hub that they can use in their core markets, but such systems are difficult to customise and costly to deploy in smaller, subsidiary markets. 

They are expensive to license, inefficient at lower transaction volumes, and often hide additional professional services fees. The price tag increases further when middleware and database licenses and the requirement for heavyweight infrastructure are factored in.

So yes, cost is one of the biggest barriers, and it is particularly acute for smaller banks asking for a lower cost way to provide the speed of execution their customers need today, and the digital services they expect tomorrow.

What is the risk if the banks don’t embrace this?

When Banks are started talking  maybe a year or so ago they were not sure about instant payments, asking what the business case was for it. That has changed completely in the past 12-18 months. 

There is a pan-European payments scheme in the pipeline at the moment and all the banks are saying forget about the business case, we have to get on board with this because if we do not offer instant payment and all our competitors are we are out of business. So instead of being a differentiator or a value-add it has become part of the table stakes. If you are a bank you’d better be offering instant payments or else you’ll get left tin the dust.