The demand for instant payment (IP) services around the world has soared in recent years, primarily driven by shifting customer expectations for fast, convenient, and seamless fund transfers.

In response to this demand, the Swiss Interbank Clearing (SIC) payment system announced it will process IP, operated by SIX on behalf of the Swiss National Bank. By August 2024, banks processing more than 500,000 SIC messages annually will be required to facilitate IP, 24 hours a day, 7 days a week, and 365 days a year. All other banks in the region will need to comply by 2026.

Other regions are fast-tracking their strategies too. The EU’s SEPA Instant Credit Transfer scheme was launched in 2017, and the European Commission recently announced its move to mandate IP. In the UK, the upcoming New Payments Architecture (NPA) is in the process of being delivered by Pay.UK.

Switzerland has proven to be a leader in payments innovation, such as with its readiness to move to the ISO 20022 standard. To remain competitive on the global stage, a seamless roll-out and execution of IP in the region will be crucial, and Swiss banks need to be prepared.

These deadlines will come around quickly, so banks have to prioritise investing in the necessary infrastructure and technology, supported by the right partners, now.

The need for instant payments

While IPs provide great benefits for banks, businesses and consumers, they can also increase risks. One major risk is that instant payments could spur instant fraud.

Facilitating a payment in real-time provides a very narrow window for banks to detect fraud, and the potential financial and reputational consequences of this could be huge.

In addition to protecting their customers from fraudulent activity, banks need to ensure they can remain fully compliant with increasingly stringent anti-fraud regulations.

For example, ongoing changes in Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance guidelines expose banks to high false positives, manual interventions, and inadequate sanctions screening, potentially leading to an increase in money laundering.

Technologies such as machine learning, AI and behavioural analytics are becoming critical for banks to automate this process and detect and prevent fraudulent transactions in real-time. Mitigating fraud at its source increases the security of their offering and the trust of their customers, whilst ensuring they remain compliant with regulations.

Ultimately, streamlining screening and fraud prevention practices will reduce costs in the long-term. This should therefore be a priority that coincides with a bank’s IP strategy.

Legacy infrastructure can slow adoption

Finastra’s recent ‘Payments Modernisation and Technology: Priorities, Challenges, and Partnerships’ global survey finds that real-time payments are one of the largest drivers of payments modernisation.

Many financial institutions are somewhere in the process of deploying new payment rails, with about 72% of respondents having completed a project, having one in progress, or with plans to implement. This suggests that most banks are welcoming modernisation as a key differentiator and opportunity to innovate.

Despite this shift to real-time payments, many banks experience implementation challenges, with 57% of respondents reporting that adapting legacy infrastructure makes modernisation efforts extremely or very challenging.

To overcome these challenges, banks need to accelerate their cloud strategies. With cloud-based systems, banks benefit from enhanced scalability, flexibility, and security that allows them to implement IP effectively and seamlessly, whilst driving operational costs down.

Tapping into a cloud and open-API based ecosystem provides additional benefits. Having access to specialist third-party services through a wider ecosystem means that banks can implement necessary services that may otherwise take too long or cost too much to implement themselves.

For example, fintech solutions exist that specialise in real-time fraud detection and compliance with AML and KYC. Via an ecosystem model, these services can be easily and seamlessly implemented within a bank’s existing offering.

Finding the right partner

To implement and offer IP quickly and seamlessly, banks need to find the right technology partner. They need a provider with strong expertise in payments, who understands the impact of upcoming regulations and can offer robust solutions to support their needs.

Finastra has extensive experience in the payments industry – specializing in areas such as Open Finance, digital transformation and instant payments – and works in close collaboration with regulators and industry bodies. Its award-winning solutions are trusted by banks in Switzerland and worldwide, including 90 of the world’s top 100 banks.

Finastra’s Payments To Go is a scalable SaaS solution that provides end-to-end payment processing, enabling banks to accelerate their IP services roll-out and deliver flexible digital payment offerings faster and more efficiently.

The cloud-based offering provides the flexibility required by banks to adapt quickly to new customer and regulatory demands, whether in relation to Instant Payments, new clearings and alternative payments methods, or combatting fraud.

It is also integrated with Finastra’s open platform for innovation, FusionFabric.cloud.

Orchestrated by Finastra, FusionFabric.cloud helps to drive collaboration and innovation across the financial services industry by giving banks access to a marketplace of specialised applications provided by fintechs.

Through open APIs, banks can easily integrate these solutions with Payments To Go and their existing offerings, helping them to future-proof their business, innovate at speed and scale, and free up resources to focus on serving their customers.

The future of payments

To remain competitive in the rapidly evolving payments industry, banks must adapt to the changing needs of their customers and the broader market. This requires investing in and upgrading their infrastructure, embracing new technologies, and implementing robust security measures.

Failure to adapt could result in banks losing customers to more agile and forward-thinking competitors, including fintechs and non-bank providers, who may disrupt the market and capture market share.

In the case of IP, failure to adequately adapt could also result in financial and reputational damage.

But the move towards IP in Switzerland is about more than just compliance. It is changing how consumers and businesses transact and providing impetus to the financial services industry to continue its journey towards Open Finance.

This is a huge move for the payments industry and a big undertaking for financial institutions. For those who have not yet embraced IPs, time and costs for compliance could be substantial. This is why collaboration is key.

Finastra believes that finance is open. Through open technology, open finance and open culture, we are partnering with our customers to help them embrace IP and ongoing innovation, so they can provide their customers with the superior and seamless experiences they expect.