Are you ready for the incoming tide of instant payments?

The move to instant payments, typically the account-to-account (A2A) type, continues across the globe. Although instant payments are well established in many major geographies, including the U.S., Europe, Japan, the UK, India, Australia, Sweden and, more recently, Switzerland, to name just a few, general adoption is not universal. Batch-based payment clearing systems and traditional card payments remain dominant, partly due to convenience, but also because the transaction mechanisms for each remain fit for purpose.

However, the tide is turning. Long-standing industry initiatives such as the push for standardised payment definitions (ISO 20022), as well as market regulations such as the European Instant Payments Regulation (IPR), are pressuring institutions of all sizes to reevaluate their payments strategy.

In many cases, organisations, for the first time, are exploring solutions to process instant payments in their markets (initially as a way to comply with new regulations) while others are considering modernising or consolidating legacy payment platforms that are not entirely ISO-20022 compliant nor 24x7. Whatever the reason for moving to instant payments, consideration should be given to the expected massive growth in payment volumes impacting banks of all sizes.

Why are instant payment volumes increasing?

Although instant payment volumes are growing, a tipping point to move standard batch payments to instant A2A payments has yet to happen. However, as noted above, market drivers and industry/regulatory mandates are very likely to force the hands of banks of all sizes.

In Europe, the European Payments Council (EPC) data continues to show increased instant payments adoption across SEPA geographies. This trend will continue as new initiatives, such as Request to Pay and pay-by-bank apps, along with new directives such as the third Payment Services Directive (PSD3), position consumer payments, driven by open banking, to soar and potentially eat into the general dominance of traditional card schemes.

It’s also significant to note the recent diversification of major card scheme players, Mastercard and Visa, into instant payments with the acquisitions of infrastructure providers such as Vocalink and Earthport. This again reflects instant A2A market growth. Another driver is that, typically, the cost of an instant payment is low enough to reduce the need for ACH batch payment processing.

Similarly, as instant A2A starts to become the norm, corporates and small and medium-sized enterprises (SMEs) will look to leverage instant payment services from their partner banks. The benefits of this include improved liquidity forecasting, better cash flow and reduced fees.

Thus, based on increasing instant payments adoption, as well as the need to ensure regulatory compliance with the IPR in Europe and/or the growth of instant payments in the U.S. (FedNow and TCH RTP), banks of all sizes should seriously factor in growing A2A instant payment volumes in their technology decisions.  

Preparing for what’s to come

Clearly ensuring resilience, security, and ease of use and maintenance remain paramount when it comes to embracing instant payments, but the flexibility to scale quickly as instant payment volumes increase is also critical. With so many instant payment platforms managing bulk-to-instant flows, could we see large-volume payroll payments or other large payment batches switching to instant? If so, could your system manage the significant volume increases? Remember to account for end-of-month peaks and holiday periods such as Christmas.

Traditional solutions would need to be sized for maximum expected volume. This would lead to higher total cost of ownership and new IT spend, as well as quickly reaching capital expenditure limits. 

However, there are solutions out there (such as CGI All Payments) that already leverage newer technologies and deployment architectures. For example, application containerisation, particularly when deployed in the cloud, supports the elastic scaling of payment processing and the efficient use of underlying infrastructure. This, in turn, enables a bank to simply pay for what it uses and, more importantly, only at the time. With this pay-for-use approach, particularly when supported by an as-a-service model, banks (particularly smaller ones) can budget and manage payment volume fluctuations more efficiently. 

In conclusion, with instant payments set to boom, don’t underestimate your future capacity. CGI is working with financial institutions across the globe to implement and manage instant payments. For a conversation on our work and how we might help your organisation, feel free to get in touch.