Instant Payments will have a bigger impact than the introduction of the euro or even SEPA

Recently I had an interview with Finextra about Instant Payments, the impact of its implementation and the related challenges and solution options for banks. In this blog, I’d like to elaborate on these same topics. I also invite you to watch the video interview on Finextra.

The payments industry is currently an exciting place to be, with market changing regulation such as PSD2 and a big push for Instant Payments, all happening at the same time. This definitely impacts the choices banks make.  Both PSD2 and Instant Payments require banks to reconsider their current strategies, but in a different way. PSD2 raises fundamental questions on the business model and positioning of a bank, like ‘Which position will I take in the value chain?’ On the other hand, Instant Payments mainly create challenges in the Operations and IT infrastructure. The impact of Instant Payments on banks’ infrastructures and the related investments should not be underestimated. In fact, the implementation of Instant Payments will have a bigger impact than the introduction of the euro or even SEPA.

Real-time and 24/7 capabilities

Instant Payments will have such a big impact because traditionally payments have been operated in a batch-oriented environment, whereas real-time processing through the entire value chain is a key requirement for Instant Payments. Also arranging 24/7 support from both IT and Operations is a key requirement. What’s more, not only payment systems, but also adjacent/surrounding systems need to be adjusted for real-time and 24/7 capabilities, for instance account bookings and compliance checks. For all these challenges banks are looking for cost-effective solution options, to minimize the impact in their entire IT infrastructure.

In terms of solution options, ranging from own-build to fully outsourced services, we notice different strategies are applied for different parts of the value chain. For example, the client channel component is typically own-build by the bank, often in cooperation with a FinTech supplier. On the other hand, in the core back-office processing – where it is not easy to differentiate – the banks consider cost-efficient solutions like outsourcing to a specialized service provider. Especially the smaller banks, not having the resources nor the budgets of the bigger players, are considering to move away from handling the development and maintenance of the back-office infrastructures themselves.

Burden-free processing

As a payment services provider, we see an increasing number of banks that turn to us for support. For them, it’s important that they can rely on a burden-free processing of Instant Payments which we offer as part of our back-office processing service, in different models.

Looking at the implementation of Instant Payments, we see a clear difference per country. While bank communities in some countries, like Belgium or the Netherlands, have expressed a clear timeline for a country-wide implementation, in other countries individual banks work with their own implementation timeline. We expect that, after the initial wave when first mover banks will start offering this service, the pressure on remaining banks will increase to follow quickly. Evidently, the implementation will be a step-by-step approach. However, as equensWorldline we are convinced that ultimately we will enter a complete instant payments global world, independent of country and/or currency.

Learn more about what are Instant Payments.