The financial services landscape is radically transforming, driven by evolving customer demands and constant technological advancements, with the payments sector at the forefront.

In an age of digital commerce, the demand for real-time, frictionless payments is higher than ever. Consumers and businesses want to be able to make and take payments instantly, how, when, and wherever they choose, even if it is a weekend or a public holiday.

This has prompted a ripple effect, resulting in the introduction of regulations and initiatives around the world, such as FedNow, SEPA Instant Credit Transfer (SCT Inst), The Clearing House Real-Time Payments (TCH-RTP), and the United Kingdom’s New Payments Architecture (UK NPA).

Another mandated instant payment service is SIC5 from the Swiss National Bank (SNB). The new system will replace the existing SIC4 – which settles payments in batches several times a day – to facilitate instant interbank payments in Switzerland and Liechtenstein. The largest Swiss banks must comply and be able to facilitate instant payments by August 2024, while the remaining banks have until 2026.

The complexities of payment modernisation

A recent survey conducted by Aite-Novarica Group (now Datos Insights), supported by Finastra, sheds light on the pivotal role of instant payments in modernising payment systems.

It reveals that 72 percent of respondents have either successfully implemented a new payment rail, have one in progress, or have plans to implement one. However, this seismic shift towards real-time payments is not without its challenges. 

Approximately 57 percent of respondents identified adapting legacy infrastructure as a significant obstacle, making modernisation efforts arduous and complex.

The survey further highlights that while offering instant payments provides tremendous opportunities for financial institutions to enhance the customer experience and stay competitive, it can also require substantial investments in technology and operational restructuring. However, if banks do not invest in more robust technology to cater to this demand, they will risk falling behind.

The importance of technological investment

Accelerating investments in technology and modernisation enables banks to address challenges and seize the opportunities presented by instant payments. The benefits of payment processing in the cloud, microservices, and Payments as a Service (PaaS) solutions are becoming widely recognized by banks to fast-track this journey.

Cloud-based solutions increase operational agility, allowing banks to respond quickly to evolving customer, industry, and regulatory demands. With PaaS, banks can also significantly reduce Total Cost of Ownership (TCO), time-to-market, and value when delivering new solutions and enhancing their scalability. As instant payment volumes grow, for example, institutions can scale their payment processing capabilities according to demand, ensuring optimal performance even during peak transaction periods.

Additionally, by leveraging solutions based on microservices or composable architecture, banks can implement, update, and deploy particular applications and services much more easily and quickly. This is particularly important for institutions to make product updates to support instant payments and future developments.

Emergence of AI and Machine Learning

Introducing any new payment rail brings new potential risks, especially when that rail operates in real-time. Instant payments risk instant fraud, and banks need to utilize technology to implement preventive measures. 

Solutions that use Artificial Intelligence (AI) and Machine Learning (ML) can effectively be used to analyse a customer’s payment history to detect suspected fraudulent activities in real time. This payments data can also be used for other purposes, such as to understand customer behaviour, enabling institutions to offer personalised services that cater to individual preferences and needs.

AI and ML can also be used to automate fraud prevention processes such as AML (Anti-Money Laundering) and transaction monitoring to further increase security while reducing false positives for seamless payment experiences. 

More recently, the advent of generative AI is transforming the entire financial services industry, with strong use cases for payments emerging. Generative AI encompasses various AI techniques ranging from machine learning and natural language processing to computer vision and deep learning. 

Among its myriad applications, generative AI can be used to analyse historical and real-time data to create synthetic scenarios and data which can be used, for example, to generate potential risk scenarios or types of fraud we have not seen before. This is particularly useful to support continued real-time fraud prevention, even as fraudsters find new and innovative methods.

Generative AI can also enhance the way institutions offer personalised information, advice, and recommendations in customer service. Through natural language processing, banks can implement much more helpful chatbots and voice assistants that intuitively engage with and support users.

Choosing the right partner

The demand for instant payments is becoming increasingly evident in the evolving financial services landscape. The journey to meeting these demands is complex, especially when institutions are still faced with challenges associated with legacy infrastructure and the ever-evolving regulatory landscape. 

For institutions to successfully embrace payment modernisation and the shift towards real-time payments, collaboration is key. Banks need to accelerate investment in technology, explore the capabilities of AI and ML, and select a suitable partner that enables success.

Payment processing solutions that utilise the right technology enable banks to successfully keep pace with new demands, and finding the right partner with the necessary industry and implementation expertise is critical.

Additionally, such solutions should be Application Programming Interface (API) enabled to facilitate further partnerships and integrations, such as with fintechs offering specialist value-added services.

Open banking and APIs facilitate connectivity that benefits the entire ecosystem. Fintechs can access banking data to develop solutions that utilise the latest technology to meet customer demands. Via fintech ecosystems, banks can then integrate these services with their existing solutions to ultimately benefit the end customer. 

Empowering banks for the future

Finastra’s Payments To Go solution helps institutions to adapt quickly to this environment. The end-to-end SaaS payment processing solution enables banks to deliver instant and flexible digital payments faster and more efficiently. Integrated with Finastra’s Financial Messaging Gateway, Payments To Go provides frictionless, more affordable, and direct access to the TIPS, SIC5, and FedNow networks, among others.

More recently, Finastra launched its Compliance as a Service solution on Microsoft Azure. The service includes Fincom’s real-time AML (Anti-Money Laundering) transaction screening and ThetaRay’s AI-powered transaction monitoring as a pre-integrated packaged solution with Finastra Payments To Go. 

The end-to-end solution, based on technology proven at many of the world’s leading financial institutions, enables US and European banks to streamline and automate compliance processes to effectively deliver instant payments. Combined with specialist compliance services from Fincom and ThetaRay, Finastra Compliance as a Service harnesses the power of AI and ML to provide on-the-spot compliance checks for optimal operational efficiency for instant payments.

Another offering from Finastra, FusionFabric.cloud, is a platform for open innovation that enables banks to easily integrate fintech services within its solutions. Through Finastra’s ecosystem, banks can integrate applications that support their journey to instant payments, such as solutions that utilize technology to further enhance fraud prevention.

In this evolving landscape, Finastra’s offerings serve as a resource, assisting banks in moving towards a future where payments are instant, seamless, secure, and ultimately focused on delivering the best customer outcomes.