Instant Payments: the race against time
In the age of mobile internet, all services are going real time. Payments are no exception: Instant Payments should appear in Europe towards the end of 2017. While this new payment instrument offers banks new perspectives, they are also subject to a double race against time: a race to make sure that their IT systems are ready, and a race to process payments in just a few seconds. Let’s take a look at the challenges that lie ahead for banks.
It’s easy to imagine that the customer wants to have a payment instrument at hand, at any moment, to pay for certain purchases. Therefore, banks must facilitate use at any time via the mobile phone or the internet, for example. However, this multi-channel initiation combined with the instant nature of the transaction may give rise to fraud….which is also instant. During the time it takes to investigate the potential fraud, the money may have already travelled across Europe. Customer protection must now be reinforced with improved risk control. What’s more, Instant Payments require communication with the customer in real time. Depending on the customer’s profile, their needs, and whether the customer is a payer or payee, the bank will have to manage different communication channels to inform the customer about the payment result.
Instant payments will impose real time, high availability and unit transaction processing limitations on banks’ payment engines, which are more used to managing mass processing. When it comes to the fight against terrorism and money laundering, banks currently have time to verify transactions, but in the future they will have to make a decision in a fraction of a second with regards to the level of risk that a transaction presents. With instant payments, the account which initiates the transaction must be debited immediately, therefore the bank needs real time position keeping, as is currently the case for cards. Furthermore, the beneficiary must be credited immediately and funds must be available to be reused. Their bank must also be capable of managing their account in real time.
Immediate Interbank Exchanges
At the moment, banks exchange payments files several times a day via clearing systems (CSM). Instant payments will require an ultra fast interbank exchange for each payment. This means banks will have to transition from file exchanges to real time interbank exchanges.
If money transfers become instant for banks’ customers, what happens to settlement between banks? Interbank settlement is not instant because the central bank payment system (TARGET2) is not open 24/7. Banks will then find themselves with a dual-speed system. However, the risk of a lack of liquidity will evolve at the same speed as Instant Payments, and similarly accounting forecasting requirements will also be increased.
All these impacts on banks’ IT systems and organisations must be reviewed to be able to meet the challenges of Instant Payments in the time allocated. Our software package offering and services, including payment engines, connections to interbank exchange systems, and additional modules, are all ready to help you face these challenges. We believe that quicker payments will make banks stronger: ‘harder, better, faster make us stronger’, the lyrics from a famous French electro-rock group make all the more sense in this context!