The adoption of instant payments, nearly doubling over each of the past five years, has motivated countries to implement their own Instant Payment networks. These national networks seek to create a streamlined and regulated channel by which instant payments can thrive in a controlled and trackable environment.
Some of the earliest adopters include TIPS in Europe and NPP in Australia. The momentum continued in 2019 when The Netherlands and Russia each launched national instant payment networks. This is certainly a trend that will continue into 2020 and beyond.
In those and other countries that are building networks, banks are now left with a decision. Do we adapt and join the race for instant payments or stay out of the race and try to protect our legacy payments business?
According to Accenture (Accenture, 2019), banks must transform a) to protect legacy payments revenue that is being displaced by new payment types, and b) to capitalize on the over US$500 billion in incremental revenue growth that is being created by new payment types over the next five years.
Against that backdrop, joining these networks seems to be the right financial decision for most banks, yet we know it isn’t that simple. ISO 20022 has become the standard message type for instant payments, but the majority of banks use ISO 8583 messages. Banks will need to either transform their legacy system or adopt a message layer that can convert message types to those required by the Instant Payment network.
In addition to the infrastructure changes that instant payments require, there are other factors out of the banks’ control. The national networks are all relatively young, if not brand new, and it will take time – and iterations – for each network to operate flawlessly. Each of these networks also carry strict requirements. These requirements can range from the amount of time that is allowed to complete a transaction, to the scalability of the program, to the security around the transaction itself. Banks must be prepared to operate in compliance.
It is undeniable that instant payments are here to stay. In order to stay competitive with other banks and stay relevant with consumers, banks will likely face the task of creating their own mode of instant payments or integrating to a national payments network. These transformations will be unchartered territory for the banks. Undertakings of this magnitude require a knowledgeable, trusted partner to help guide you through the adoption of the technology, and message formatting, with an understanding of the requirements expected of a participant bank operating within a national instant payments network.
