Consumer-facing technology brands have done much to reset expectations around speed, but also convenience, value and choice. Users expect payments to keep pace with the speed of service in other areas of their lives. To meet customer expectations and set themselves up strategically for the future, real-time, immediate or instant payments are now a necessity for banks around the world. But how does a bank put strategy into action and implement real-time payments?
A recent report Instant Payments: Insights from early adopters considered the challenges for smaller banks and those in secondary markets, and how to overcome them. With smaller budgets and fewer IT resources than larger banks, smaller banks require targeted, cost-effective solutions. They must also seek to minimise implementation and testing costs. The research drew on 15 executive interviews with large and small banks, technology providers and payment processors. It also considered six bank and processor case studies around budget and cost issues. The report was prepared by Lipis Advisors on behalf of Icon Solutions, an IT payment consultancy within the financial services sector.
When implementing real-time payments, the main technical considerations are around enhancing systems to support 24/7/365 operations. Stakeholder processes and back-end systems, such as core banking, fraud prevention and sanction screening, must operate around the clock. New front-end applications that utilise real-time functionality, such as mobile and P2P applications, may also be built out.
However, small and medium-sized banks face unique challenges when implementing real-time payments. Upfront costs may consume a large proportion of available budget. Devising payback times and business cases requires careful consideration. A quick time-to-market may accelerate return on investment, yet the solution must be future-proofed, and be flexible enough to facilitate innovation and inevitable regulatory compliance requirements.
Interviewees reported pursuing one of two strategies to implement real-time payment capabilities. Either upgrading existing legacy systems through a targeted approach, which adds a real-time module alongside legacy systems. Or pursuing a broader system modernisation, which consolidates interfaces with legacy systems, or even replaces them with a new central platform or payments hub.
Irrespective of the strategic approach chosen, a bank can then either implement an off-the-shelf solution, or custom build one from scratch. Naturally the current state of bank IT systems, the overall business goals and broader market context help determine the strategic approach and implementation path.
Initial investment costs are typically split: 40 percent on hardware and software licensing costs, 35 percent on system integration, configuration and customisation, and 25 percent for system testing, the report found.