The world is moving to instant everything. In the payments arena, this means that the old world of multi-day or multi-intraday payment clearing is disappearing forever. This is great news for the consumer, but a major challenge for the bank, requiring expensive accommodation as part of an already crowded change agenda.
Migrating to instant payments is a major undertaking that significantly impacts a bank’s payment applications portfolio. Many existing payment and ledger applications are not geared for true 24/7 operation, and, as a result, substantial enhancement underpinned by lengthy end-to-end testing is required to get them ready for instant payments. Let’s look at some of the practical and technical reasons for this, along with an approach to mitigate the disruption.
Challenges in moving from batch to real-time processing
Real-time payment infrastructures, such as those planned across Europe, are designed for the customer, with less concern for the providers that will have to implement them. Real time in Europe also comes with ultra-high availability—24/7/365, which is an added complication. Today, almost all core ledger systems within banks shut down at night while certain batch processes are completed. As a result, enabling instant transfer of value from or to an account during this period requires new functionality—functionality often seen only in the card world.
Batch-based systems are designed to process big files of data at particular times of the day, not to feed through a constant stream of transactions like instant payments, which require high-priority authorization, fund checking, scanning and instant response. Moving from traditional batch processing to real-time processing requires transforming legacy mainframe payment systems to change their overall design and the way they process transactions.
Many banks have implemented new payment infrastructures or payment hubs over the last 10 years and might decide to upgrade by adding functionality for real-time processing. However, given the complexities of real-time processing, the potential disruption to existing payment applications must be considered. In addition, to avoid operational instability, any upgrade requires complete end-to-end testing across all payments channels.
And, of course, 24/7/365 has a major impact on other activities and operations within the bank. For example, what changes will be required for customer support and call centers once the bank is effectively open for business at all times? What happens when something goes wrong?
With the introduction of SEPA Instant Credits for Europe, these issues are now very real for many of the Eurozone’s 4,400 banks.
One potential solution: Implementing a stand-alone system
One option for banks to consider in lieu of upgrading is the implementation of a modern stand-alone instant payments solution—one that has been designed from the outset as a real-time processing system and that can sit alongside existing payment applications.
Although this is counter to the payment “hub” concept and much of the perceived wisdom of the last decade, there can be a number of extenuating circumstances that makes this the right option. Stand-alone systems can provide the bank or payment processor with a significant amount of resilience. If the bank adds instant or real-time payments as a channel to an existing payment hub and that system has problems, all payments cease and there is no fall back. Consumers are most unhappy when they can’t access their money or pay their bills. Many banks have the social media scars to prove it.
Stand-alone systems, however, don’t have to work in isolation; they can work alongside existing systems. This is the case especially in Europe where euro credit transfers already are processed in batch as instant payments are added. If a bank already has routing data and other SEPA- specific data in its current system, why not feed it to the stand-alone system or share the data files.? This approach significantly speeds up implementation and reduces ongoing maintenance.
Modern stand-alone systems also have an advantage in that many are built using ultra-high performance open source technology. This should be top of mind for banks when choosing a partner for their migration to real-time payments. Open source technology usually includes much of the complex resiliency and recovery software out of the box and removes all if not much of the required runtime licences. As instant payment volumes grow, this can have a huge benefit on future upgrades and running costs.
History tells us much about instant payments from the countries that already have implemented them, such as Sweden, Denmark and the UK. Volume growth may be slow at first, but it builds up and, once the bandwagon is rolling, there is no return to batch processing. Real-time payments on Sweden’s new platform grew by over 600% from January 2015 to January 2017. Finding the right solution for adopting instant payments has never been more urgent.
So, while moving to real-time payments may be a major technological challenge for banks, there are approaches that can help banks migrate in short timescales while protecting their income, keeping their customers happy and building a platform for the future. CGI has extensive experience in designing, building and implementing payments infrastructures and solutions. Feel free to contact me to discuss your organization’s instant payment challenges and our extensive work in this area.