Insight: Modernisation key to unlocking instant payments opportunities

Neil Macro,
10 Apr 2024

Instant payments serve as a driving force for change and innovation. In the EU in particular, they are a critical element of the payments landscape as the deadline for banks to comply with the SEPA Instant Credit scheme quickly approaches.

By January 2025, banks will be required to offer instant credit transfers at any time of day and year, and at a cost that is no more than the fee charged for sending or receiving non-instant euro credit transfers.

The landscape in Europe is unique from other regions. Financial institutions (FIs) tend to be siloed within their borders, but there are commonalities between the many local schemes.

Within the EU, the Single Euro Payments Area (SEPA) includes two pan-European clearing rails: the ECB’s Target Instant Payment Settlement service (TIPS) and EBA Clearing’s RT1 system. In Switzerland, instant payments are now processed via the fifth generation of the Swiss Interbank Clearing payment system. In the UK, banks can instantly transfer funds via the Faster Payments Service launched in 2008.

These systems function similarly but with local names and currencies. Surprisingly, many FIs do not realise the similarities between the payment schemes, yet many of the challenges, opportunities, and technology options in a modernisation journey are also the same. Irrespective of the scheme or regional nuances, there’s a substantial surge in customer demand across all instant payment networks.

To capitalise on the rise of instant payments schemes in Europe, and to meet the upcoming regulatory deadline for those in the EU, FIs must implement modern cloud-based technology that simplifies connectivity to all flavours of instant payments, enables greater efficiencies and combats the risk of fraud.

Ultimately, this enables banks to deliver a high-quality service to customers and capitalise on the growth opportunities ahead.

Modernisation and PaaS

Navigating and integrating with existing infrastructure, costs, and resource demands are common challenges for FIs. They must understand how to overcome their own hurdles to assist customers more easily with theirs.

To do this, a strategic component of modernisation is Payments-as-a-Service (PaaS) and utilising cloud. Cloud-native PaaS platforms can lower the cost of ownership, provide a quicker time to market, and help reduce technology complexities.

Choosing a PaaS solution that offers direct connectivity to instant payments networks, incorporates regulatory and compliance updates, and comes pre-integrated with modern anti-money laundering (AML) and fraud solutions can reduce total cost of ownership and streamline operations.

This preparation also enables quicker time to market and readiness for the upcoming SEPA Instant Credit scheme deadline.

Regulatory considerations

The rise of instant payments has dramatically reduced the operational window for sanctions screening and counterparty vetting procedures.

Looming pricing regulations should be viewed as a catalyst for change. FIs concerned about mandates to price instant payments, like low-cost legacy payments, should be focusing on the total relationship value.

Attracting and retaining business customers through robust payment capabilities goes beyond just instant payment transactions.

As regulations evolve and new payments services emerge, FIs should consider adopting a modular payments hub-as-a-service solution for their payment infrastructure modernisation strategy.

This incremental approach permits FIs to continually evolve their infrastructure over a period of time while leveraging the cloud-based solution for low-cost pilots of new services and regulatory updates.

Evaluating growth in Europe

Across the many rails and settlement systems in Europe, one consistent link is the anticipated continued growth of instant payment volumes. Addressing this anticipated rise, over 90% of businesses are investing significantly in payments technology, according to a report ‘Instant Payments in Europe and the UK: How to Seize the Opportunity’ by Datos Insights and Finastra.

The report revealed that businesses understand the impact of an efficient end-to-end payment strategy, including improved cash flow position and forecasting, reduced days sales outstanding, stronger business relationships, and operational efficiencies that can all be competitive differentiators.

As margins continue to thin and business end-users are proactively seeking best-in-class solutions, FIs that are not investing in their capabilities and ensuring access to faster, data-rich, and automated services will miss out on this critical spend.

Significant opportunities lie ahead

FIs of all sizes must recognise and embrace the significance of instant payments. Despite the diversity in systems and regulations, there exists a commonality that many FIs have yet to fully realise.

Harnessing modern cloud-based technologies via PaaS capabilities can provide FIs with the necessary tools to navigate this complex landscape, enabling them to lower costs, expedite time to market, and enhance operational efficiency.

Moreover, as regulatory pressures intensify and the demand for instant payments grows, FIs must adopt a forward-thinking approach to modernisation.

Modular solutions allow for continuous evolution of payment infrastructures, while cloud-based capabilities ensure cost-effective adaptation to regulatory changes and the introduction of new services. Failure to proactively address these shifts may lead to missed market opportunities and diminished competitiveness in an increasingly dynamic financial ecosystem.

Importantly, by confronting these pressures directly alongside a strategic technology partner, banks can ensure their readiness to meet the looming SEPA deadline in January 2025, as well as any other regulations on the horizon across Europe and beyond.

Neil Macro is vice president, managing director – sales, EMEA mid-markets, payments at Finastra