There’s no question that in today’s always-on world, consumers don’t want to wait for anything. In banking, that means they want their money now – whether it’s an interbank transfer, a check deposit or receiving money from a friend.
Financial institutions around the world are stepping in to meet that need – instantly, securely and easily – by working to delivering faster-payments systems between financial institutions. To get there, each financial institution must transform aging and siloed infrastructure to accommodate the new world.
The task at hand is urgent and complex. Real-time funds transfer is live now in places like the United Kingdom, Singapore and Australia. Japan has long had an implementation. Name a region – from the EU to the U.S. and Canada – and regulators and industry groups are working on it. Some are further ahead than others.
Financial institutions must start planning now in order to respond. Organizations starting down the path to delivering instant or near-real-time payments likely will find that they are hindered by legacy IT systems. Trying to build a workaround can be difficult and cumbersome. But changes as sweeping as the movement to real-time payments can trigger significant IT transformation if an organization is willing to rethink payment systems to prepare for a future that is just around the corner.
Here’s a look at the challenges, and a framework for approaching solutions:
The blizzard of sources from which transactions might be initiated – such as ATM or mobile banking service; text or messaging service – is only going to increase. And participants in this new world aren’t just banks. Alternative payment services like PayPal, Venmo or PopMoney that let consumers send, request and get money directly from one person to another are putting the pressure on financial institutions to compete. Forward-thinking banks will make sure they’re ready to respond no matter the source of the transaction.
Currently, the landscape is peppered with a mix of payment standards internationally, which adds complexity to adoption and implementation. But the emergence of a common standard like ISO 20022 for electronic data exchange between financial institutions will help all players and all countries, particularly as regions like the U.S. and Canada get further along the path to instant payments.
Yet existing bank systems are not built to handle this payment flurry in a frictionless way.
FUTURE PROOF INFRASTRUCTURE
Succeeding in the new world requires a web-services technology approach: Bank payments architecture should have flexibility. Modern banks must have the right infrastructure in place to manage the myriad of connections in a fast-response, high-volume environment.
But transforming payments infrastructures takes time. Institutions looking to get things done quickly will be under pressure. Patching existing systems to accommodate new demands is one short-term solution, but only a very short term.
My advice: If you are picking a patch to replace pieces of your infrastructure, make sure it can grow into being a long-term solution. It should be a bridge to a bigger overhaul of your systems – whether it’s your channel system for handling card transactions from ATMs and point of sale terminals or your system for handling internet banking traffic.
What will ultimately be required is bold IT transformation to replace legacy technology, some of which is 20 years old. Transformation should embrace technologies that will endure and evolve to meet new or emerging needs.
Already, some progressive banks are transforming to a hub infrastructure which can be the focal point for handling a full range of transactions.
THE BOTTOM LINE
The real-time world is driving dramatic change across finance. Consumers no longer accept the idea of waiting a day, or two, or three to get their money. In the not too distant future, we’ll expect real-time payments internationally. And as the Internet of Things develops we’ll see connected devices we can’t yet imagine involved in transaction requests.
It’s really simple: The world of payments is changing so dramatically and so quickly that transformation of payments infrastructure is essential. Tackling it is not a question of if, it’s a question of when.