Implementing instant payments: 5 considerations for banks

Written by Christian Schwarz European Head of Payments
Image of cityscape

The European Commission’s move to mandate instant payments (IPs) is expected to bring enormous benefits to consumers, businesses and the industry, such as improving customer experiences and cash flow management, as well as bringing ubiquity to the pan-EU payment zone. The upcoming EU regulation – intended to drive uptake of instant payments across the EU – requires banks to consider their strategy carefully. For banks looking to benefit from the ease, lower total cost of ownership (TCO) and agility of buying an instant payments solution, five key considerations include:

  1. Ensuring regulatory compliance

    The proposed regulation means that payment services providers (PSPs) across all 27 EU countries will be mandated to offer and receive IPs continuously, 24 hours a day, 365 days a year. Moreover, these transactions should be charged equal to or lower than non-instant euro credit transfers.

    Customer interfaces facilitating credit transfer orders must support the option to submit multiple instant euro payment orders in a single bulk payment. This functionality enhances efficiency and convenience for individuals and businesses, streamlining the payment process.
    One crucial compliance requirement is verifying the payee's name against their account number (IBAN) before authorizing a payment.

    PSPs must notify the payer in case of a mismatch, raising concerns about potential fraud. The payer can then decide whether to proceed with or halt the payment order, ensuring enhanced security and risk mitigation. PSPs must also conduct daily verifications to determine if their customers are subject to EU sanctions. Failure to perform this essential sanctions screening procedure may lead to potential financial damages for the PSP from the other party involved in the instant payment.

    When selecting a solution, banks should look for a partner with the knowledge, experience, technology and third-party integration capabilities to ease the burden of compliance end-to-end and facilitate a smoother transition to instant payments.
  2. Implementing common standards

    One crucial aspect of implementing instant payments is adopting common standards, such as ISO 20022. The new message format will bring significant advantages, such as reducing the risk of errors and fraud, and enhancing data availability, accuracy and integrity.

    Furthermore, ISO 20022 facilitates improved efficiency in payment processing. ISO 20022 messages can be processed more quickly and seamlessly compared to legacy message types. This streamlined processing enables shorter transaction processing times and faster settlement, enhancing operational efficiency for banks and their customers. The adoption of ISO 20022 also presents new opportunities for innovation in instant payments. The message format allows for the exchange of more detailed payment data, enabling the development of innovative payment products and services. Selecting an ISO 20022 native solution should therefore be an important factor within a bank’s instant payments strategy.
  3. Prioritizing ease of integration

    When implementing an instant payment solution, one crucial factor that banks must prioritize is the ease of integration with their existing payment processing systems. Banks often have legacy infrastructures that struggle to accommodate modern technologies. Therefore, when selecting a solution, they should pay close attention to the availability of standardized interfaces and integration tools. Through Open Banking, payments and APIs, integrating new applications and solutions can be quick, cost-effective and seamless.

    Prioritizing ease of integration minimizes disruptions to day-to-day operations during the rollout of the instant payments solution. Customers today have come to expect fast, convenient, and secure payment options, however this should not come at the cost of friction in the user journey.

    Secondly, prioritizing ease of integration allows banks to leverage their previous investments in payment processing infrastructure. Many banks have invested substantially in their payment processing systems. Integrating an instant payment solution seamlessly with these existing systems reduces costs and enhances profitability. It eliminates the need for a complete infrastructure overhaul, enabling banks to capitalize on their previous investments while unlocking the benefits of instant payments.
  4. Maximizing security and preventing fraud

    Enhancing security and preventing fraudulent activities are crucial considerations when implementing an instant payments solution. To get the most out of an offering, banks should look to partner with a company that facilitates access to open technologies and a broader ecosystem to enable the implementation of third-party value-added services.

    Through ecosystem play, banks can integrate with fintechs who, for example, offer multi-factor authentication (MFA). This provides an additional layer of security by requiring users to authenticate themselves using multiple methods. For example, a combination of inputting a password and a one-time code sent to their phone, or faster and more streamlined methods such as biometrics, enhances the security of transactions, reducing the risk of unauthorized access.

    Other fintechs specialize in advanced fraud detection tools to help banks identify and prevent fraudulent transactions. These tools leverage various technologies, such as machine learning and artificial intelligence, to analyze transactional data. By detecting anomalies and patterns associated with fraud, banks and their customers can take immediate action to mitigate risks. Banks can also integrate with fintechs offering a Confirmation of Payee (CoP) solution, both to further mitigate fraud and to prepare for the likely event that it will soon become a regulatory requirement for banks.
  5. Being agile to adapt to future requirements

    The agility of an instant payments solution to accommodate new demands is essential. This flexibility enables banks to meet evolving customer requirements and support new and enhanced payment types - such as Request to Pay - channels, and regulatory mandates.

    To select the right solution, a long-term payments transaction strategy is crucial. This should start with in-depth analysis of a bank’s operational requirements, customer needs and regulatory requirements. Without this, banks risk requiring costly adjustments or even a technology change at a later date. A long-term, strategic approach – that includes cloud for increased scalability and security as well as the ability to seamlessly integrate with third-party fintech applications – helps to ensure the solution meets the bank's requirements and goals, both today and in future.

    The payment landscape is dynamic, with constant advancements and emerging trends. Banks that fail to keep pace risk falling behind their competitors. By partnering with technology companies and fintechs, banks can benefit from expertise, resources and capabilities beyond their own, leveraging technological advancements that may not be feasible to develop internally.

    Implementing an instant payment solution requires careful attention to these key considerations. Regulatory compliance, common standards, ease of integration, security measures, and future adaptability are all vital for banks. By addressing these factors, banks can ensure a seamless transition to instant payments, deliver enhanced customer experiences, and stay competitive in the evolving financial landscape.
Written by

Get in touch
We are here to help your business reach its goals

Contact us