The world is working at high speed. Pretty much everything we do is fast: Fast food, fast mail, fast cars, fast service. And now we are moving into the era of not just fast payments, but Instant Payments. The driver behind these faster payments is the consumer. In a survey by Ipsos Vantis, they found that 80% of outbound foreign money transfer users and 58% of account-to-account users expect faster, or instant payments. The reasoning was to improve mobility and convenience; in the era of mobile banking, this is not surprising.
This has started a revolution in banking in Europe – one which the Japanese have embraced since 1973, this is real-time payments. It is expected that Instant Payments or ‘real-time’ payments, will arrive in Europe by the end of 2017. But this new wave of payment methods, bring with it not only positive impacts on consumer usage of bank services but also put pressure on banks to ready themselves for this change. This has created a race against time for the banks – a race in preparedness of IT systems to cope with the paradigm of Instant Payment.
The Banking Challenges of Real-Time Payments
The challenges faced by banks wishing to implement real-time payment schemes are complex. The complexity exists across the entire payment chain. This is made even more challenging when coupled with the time-scale to delivery, i.e., the end of 2017. Taking legacy systems and upgrading them to handle modern day expectations of payment services is not for the faint hearted. A number of problem areas exist that need to be addressed to properly implement and manage Instant Payment systems, these include:
Faster = Real-time: The fact is that faster payments are also real-time payments. This means that the idea of normal banking hours goes out of the window. Because of the culture of set banking hours, banks are used to managing payments in bulk during the day. Real-time payments require real-time processing. This means banking systems will have to change to accommodate this new approach.
Real-time fraud: If payments happen in real-time, then any associated fraud can too. Retrospective fraud analysis will have to upgrade to handle this. This means that instantaneous fraud detection, or real-time fraud analysis systems, needs to be in place to spot fraudulent transactions.
Keeping up with compliance: Real-time payments and real-time fraud analysis, means that compliance standards have to change to reflect the new risks. Compliance standards are likely to have new requirements to reflect the real-time payment changes.
Faster inter-bank settlements: Even if consumer payments happen in real-time, the settlement between banks is not. The result is a dual system. With this accounting and forecasting expectations will have to evolve to handle Instant Payments.
Bringing all of the requirements for Instant Payments together, by the end of 2017, is a serious challenge to the banking community. IT systems will have to be upgraded and improved to accommodate the new framework of instantaneous payments, and this transition has to be as seamless as possible to prevent any fallout.
Winning the Race
Real-time payments are the near future of banking. They are wanted by consumers, and they are likely to drive more consumer activity in the area of money transfer. Keeping IT systems in top shape to handle this transition is now a race against time, and a modern day challenge for the banking community. The use of innovative solutions like Blockchain based transactions will also help the transition of banking systems into Instant Payment territory. The banks that take on this challenge and who take the brave next step will win out with an increased and happier customer base.
Sopra Banking Software has created a tripartite partnership with Société Générale and La Banque Postale to utilize the Sopra Banking Software platform, so addressing the needs for instant payments and mobile banking. Together, this experienced team provides the perfect leadership and software solutions, needed to ensure bank payment systems successfully move into this new and exciting era.
Take a look at Sopra Banking Software’s video on the challenges of instant payments here.
Also, see their dedicated payments portal which explores topics such as Blockchain and financial transactions, mixed payment platform, Instant Payments and PSD2: here.