Last Tuesday I listened to Finextra webinar on “Instant Payments connectivity on the Cloud”, and found a lot of similarities to what financial institutions are facing in Europe vs here in the US (with the exception that banks are not yet facing mandates from the government to include instant payments)
The Eurozone is preparing to make SEPA-Instant payments a mandatory part of the EU payments infrastructure. The conversation with Broder Schumann, Daragh Kirby, and Andrew Muir facilitated by Jane Cooper discussed the challenges associated with such a mandate, and offered guidance to financial institutions faced with this mandate. I found these insights also very apropos for our US counterparts.
Below are some of my takeaways from the conversation:
Regulation is coming: Government movement toward regulation requiring banks to offer instant payments to their customers
Get the foundation right: Financial institutions are slow to adopt, because it’s too important not to get right the first time because (especially because this will be the foundation of the innovative technology that will follow)
Assess your readiness: When implementing faster payments, it’s important to do an assessment to make sure your systems and processes are compatible (ex. Legacy infrastructure and batch processing)
Security is still fundamental: Core screenings still need to be done - fraud detection, sanctions screening, etc - except now these must be done 24x7x365 this has cascading impacts to management and staffing
Liquidity management can be challenging (MK note: this mainly applies when financial institutions enable instant payment send capabilities), value typically isn’t high when first supporting it, but it needs to be checked in real-time. Eurozone has anticipated this and has made the ability to move money around the Eurozone central to their platform
Optimized: It’s generally known that you can optimize for throughput (like batch) or latency (1 second response), but not both, butt with instant payments it’s both
Get Help: New infrastructure, new time schedules and finding people is hard. Outsourcing & implementing SEPA instant in the cloud can speed your time to market and save you money (infrastructure, SLAs, legal, data protection already solved for). It costs you outsource, but moving to the cloud also costs money. You can save costs in the long run by outsourcing, but you have to go through the costs to get to it.
Global shortage of skilled expertise: While there are a lot of people out there with payments expertise there is still not enough. They need to understand throughput and capacity and expanding it as needed, high value payments, multi-channel frameworks, active/active maintenance, etc
Organizations have the time/cost/resource constraint: Where does this fall in the business priority line up. There may not be immediate revenue gain from it. In lieu of a government mandate, it’s primarily the “staying in business” case. If/when it is mandated it will reach ubiquity. (MK note: Adding instant payments to your product portfolio can help shore up those depository assets!)
Is SEPA Instant better than SWIFT? A lot of Instant SEPA is over the SWIFT Network. More traffic is going to less costly challenges.
Benefits: Greater transparency on the costs of doing business, you can see the volume, you can tie it to the costs.
Don’t just change for the sake of change. You need to have a vision - why are you doing this, who are you doing this for, how are you going to make it work, make sure you are adding value for your clients.
Work with experts. Talk to people who have been through this, and have the infrastructure that works and scales, and have lived through the problems. You will then have more bandwidth to figure out what you are building and for whom.
Recommend Outsourcing: Instant payments is the new normal “for real” and lends perfectly to outsourcing when under pressure of cost and time to market”
“Instant payments is not the end of the journey, it’s just a step to a more rewarding infrastructure” ~ Andrew Muir
“ It costs you to outsource, but moving to the cloud also costs money. You can save costs in the long run by outsourcing, but you have to go through the costs to get to it.” ~ Broder Schumann
"Do it right, because you need it, you need it to work. Put it at the top of your agenda, act decisively, and act now."
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