Surhat

Healthy and General

In An On-Demand, Open Banking World, Instant Payments Are

4 min read

Romi Stein is CEO & Co-Founder of OpenLegacy, leading its strategic vision of digital-driven integration for legacy systems.

Consumers increasingly accept new forms of payment, embracing both contactless and mobile solutions that are faster and more convenient. According to a report by McKinsey, the penetration of digital payments reached 78% in 2020 alone. More recently, a Mastercard survey found that 93% of consumers are willing to try additional emerging payment methods including biometrics, digital currencies and QR codes.

In other words, consumers want digital payments—and they want them instantly. This is significant and arguably the most exciting development to occur in the payments sector in a long time. The European Union even introduced a new standard that requires compliance in 2022, effectively setting a guidepost for the rest of the world to learn from, if not follow. However, financial institutions have mostly failed to deliver the level of service that consumers are seeking. A Forrester Consulting and Ingo Money study found that 93% of financial services have not met consumer demands for instant payments.

Why are so many businesses struggling to fulfill expectations? While consumers look to industry stalwarts for the same level of innovation they find at startups, traditional banks and other financial institutions were not designed for instant payments. Their IT infrastructure, built from inception for batch processing, simply cannot keep up with the instantaneous, on-demand desires of the modern market. It is imperative they do—and by embracing the right technology, large financial institutions can compete with their young fintech competitors.

Core Infrastructure Should Not Be An Obstacle

While the biggest financial services firms have been around the longest, and while they have the most capital to spend, they continue to be held back by their core infrastructure. Designed to perform Close of Business Processing (CBS), which requires downtime as well as batch processing and a number of other legacy processes, many banks simply weren’t built for instant payments.

Instant payments are an important part of open banking, which uses APIs to provide third parties with secure access to financial data. Open banking is being readily embraced by the entire financial sector, and it is now time for industry players of all sizes to turn their attention to instant payments. That’s not to say they haven’t had some success already; same-day ACH is an area in which banks show growth. However, there is much more to be done if banks want to emulate their agile counterparts in the fintech space.

Cloud-Native Microservices Are Critical

Open banking is essential to the evolution of financial services, especially as consumer tastes change and their expectations for innovation increase. In this fragmented space, open banking could be just what the industry needs to standardize and democratize access to financial accounts, foster new partnerships between banks and fintechs, and deliver innovative services and partnerships.

To get there, financial institutions can no longer rely on APIs deployed on the core system, which can lead to lackluster results and zero availability during planned downtime. A far better solution, and a superior way to prepare for an open banking future, is to create cloud-native microservices that expose standard REST APIs. This can allow for a natural connection with core systems and can ultimately pave the way for the instant payments that consumers desire.

Prepare For This Transition With Smart Choices

In preparation for this transition, it is helpful to have cross-functional teams. However, the primary goal should be to build a structure in which each set of teams and team members can leverage their strengths. This means building a process where digital services are created by the digital services team instead of legacy teams, which would be an inappropriate allocation of resources.

Financial institutions can best ensure that the technology is successfully deployed by making sure they build truly cloud-native microservices. They should consider whether the services are self-contained and whether they have their own life cycle and functionality. It is important for banks to make sure they aren’t simply rebuilding the old monolithic architecture in the cloud, where each microservice is waiting on middleware to execute its next step.

This transition is not without its challenges, however. One major stumbling block is the risk of adding more technical debt to handle requests that come in. Banks need to prioritize the requests, build them directly into the existing workflow and keep the focus on building digital assets. Do not add more functionality outside of the new digital architecture being built unless there is a very good reason to do so.

Embrace Technology That’s Built For The Future

With the EU’s new standard requiring financial institutions to process payments in 10 seconds or less, banks can no longer rely on outdated systems that increase wait times. They need a solution that allows them to handle the first API request immediately, not minutes or more later, to ensure that both government and consumer standards are met. This will be more important in the years to come, so it is up to banks and other industry stalwarts to take the initiative now and embrace technology that positions them for future success.


Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives. Do I qualify?