Instant Payments Take Away the Safety Net: How Banks Avoid New Silos

Quick Summary

Edward Ireland, Product Director at Bottomline, explains how instant payments remove one of the traditional controls banks relied on: time. With no room to act in flight, every check has to happen before the payment is made. As banks add the controls, reporting and scheme connections this requires, Ireland argues they must avoid building new silos by leveraging common standards such as ISO 20022.

Why are instant payments such an important driver of change?

Banks face demand for instant payments, cross-border transparency, fraud controls and operational resilience all at the same time. Ireland singles out instant payments as the really important topic, because they drive so much of the shift towards pre-validation and doing work before a payment is initiated.

What safety net do instant payments take away?

Historically, banks had much more time to deal with something within the workflow of the payment itself. That time was one of their traditional controls. Instant payments, Ireland says, the name gives it away: the payment happens straight away. So anything that needs to be done around that payment needs to happen before it is made. You can't do anything in flight.

As a result, institutions implementing these changes have to:

• Put in more controls
• Be able to report
• Access other databases
• Connect to new schemes

How can banks modernise without recreating the silo problem?

The risk is ending up with exactly the same fragmentation that has built up over decades, just with newer rails. Ireland's answer is to leverage the common denominators between schemes, such as ISO 20022, and the increasing consistency in the way different schemes work, and bring them together into what he calls a single silo.

Rather than developing each rail independently to support a different market, banks should bring them into a common process built on common standards. The question every institution should be asking, he says, is how to bring any new process into the same environment where it already handles its other payment schemes.

FF NEWS TAKE:

Instant payments are usually sold as a customer experience upgrade. Ireland's framing is more useful for operations teams: they are a control problem. Losing the in-flight window forces fraud, sanctions and validation work to the front of the process, and doing that scheme by scheme is how the next generation of legacy gets built. Consolidating around ISO 20022 is less exciting than launching a new rail, but it is what stops the modernisation bill arriving twice.