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A Clear Vision for Instant Payments Is More Important Now Than Ever Before
Demand is increasing for national and international payments, clearing and settlement infrastructures to meet the expectations of consumers and businesses. Global bodies are driving standards either in response to regulation or by encouraging market-led private solutions to support the relentless rise of digital payments transformation of retail, high value payments and CBDC (Central Backed Digital Currency) solutions. This transformation is unprecedented, and the ongoing COVID-19 pandemic is adding strain to the infrastructure in areas never seen before due to the shift to online purchases, with some retail firms exceeding Black Friday and Cyber Monday volumes every day.
When many legacy payments infrastructures were originally implemented, they were aligned to the model of overnight batch processing. Real-time performance requirements were smaller, with payment processing schedules often mirrored by offline balances shown to customers. Only card rails required fast responses for product purchases.
Regulation, regional digital alternative payments methods and the overlay of new payments tools, such as ApplePay and its imitators on existing card rails, have driven faster response requirements, and with it, higher consumer expectations.
Rising to the Challenge of Delivering More Versatile Solutions
Looking at the capabilities of technology available today, scale, speed and resilience are not the issues they were before. A prime example is high-frequency trading platforms with process time capabilities in excess of a national or corporate payment process capacity.
Fraud solutions have transformed as machine learning and artificial intelligence leverage open API architecture to manage large data sets with incredible processing power and without the constraint of being on-premise. The solutions are nimble in the race against more sophisticated fraud scenarios. Gone are the days of costly annual upgrades.
ISO20022 is slowly increasing the use of standardized data-rich formats, enabling large amounts of transmitted data to not only meet basic payments use cases but also much richer message types. Payments interoperability and future use cases for a data-rich instant transfer network is a topic for another day, but it’s important to have a network that can accommodate change as new message use cases are agreed upon by national or international agencies in support of consumers and merchants – that also come at a reduced cost for banks and corporates.
National infrastructures are still largely the domain of incumbents, with new contracts being drawn up to deliver instant payments infrastructure. But, a national payments network solution for one country is not easily transferable to another due to differences in legislation and the way the wider national banking system has developed to support the economy. Each solution requires quality customization to act as the central switch and processor for the network.
While central systems are upgraded, banks and increasingly corporates are integrating into the new world. They have to accommodate retail payments platforms, which are usually supported by delayed net settlement, high value payments solutions operating real-time gross settlement. Soon, they will also have to support the aforementioned CBDC solutions, with possible token-based transactions and real-time gross settlement.
Herein lies the challenge for the payments industry: how can they support what will be three national-level solutions before throwing in the complication of international networks, such as Society for Worldwide Interbank Financial Telecommunications (SWIFT) payments and various flavors of distributed ledger technology?
Understanding the commonalities that can deliver true value in supporting all solutions will provide longer-term gains and lower overall maintenance costs. Enterprise solution architects with a true breadth of technological understanding, rather than those who are wedded to one product, are worth their weight in gold.
With true microservices technology in place, knitting together best-in-class components to support at least three instant payments scenarios is achievable. There is no longer the need to tackle three monolithic nightmare integrations at once as open API architecture and converging protocols allow for the implementation of truly modularized solutions.
Taking a more modular approach allows true market leaders who excel in their area to be the best choice. These vendors can react more quickly to change with configurable solutions, shortening implementation times, enabling agile delivery and reducing the cost of future change. There will always be change – the complexity comes in managing multiple vendors and integrating the solution.
An integration partner that can provide truly world-class solution architects backed by the deep technology expertise necessary to coordinate, integrate and prove value will become a vital asset for companies looking to meet the needs of the evolving payments industry.