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Preparing for Instant Payments in a Digital Economy

As the commercial banking landscape transforms rapidly to adapt to an increasingly digital world, it’s clear that client-demand-led schemes like faster payments are challenging the traditional paradigms we’ve held sacred for decades. This is resulting in direct pressure on financial institutions to adapt faster and place a premium on innovation now – more than ever before.

At Sibos in Geneva a couple weeks back, it was my pleasure to moderate a discussion on the topic of “preparing for instant payments in a digital economy” with very esteemed panelists. This resulted in a very interesting and engaging discussion given the two different viewpoints: one from a U.S. Central Bank and the other from a European Commercial Bank.

My key takeaways were as follows:

  • Demand for new payments schemes and services in an omnichannel world is driving the need to be more efficient, faster, and nimble, to serve clients effectively. The true business case for faster/immediate/instant payments is serving customer needs and providing them the option to send and receive payments almost instantaneously. But this also opens up the avenue for innovative players to provide value-added services on the back of this scheme.
  • The Central Banking authorities like the U.S. Federal Reserve Bank are enabling their member banks with guidelines by being an advocate, educator, and, more importantly, a change agent to influence payments system policy and direction. In Europe, directives like PSD2 and Pan European (SEPA) Instant Payments scheme are introducing new dynamics that are driving intermediation and emergence of Fintechs.
  • Security and risk reduction are very high on the priority list for participants offering Faster/Instant Payments. These schemes highlight the need to provide this service together with real-time counter fraud, financial crime detection, and vastly improved and simplified regulatory compliance capabilities.
  • As banks invest in their modernization, there’s a trend toward reliance on common industry standards like ISO20022, to ensure ability to support multiple requirements and proceed with progressive renovation of their legacy infrastructure.
  • Being a truly digital bank is real. Financial institutions like DNB in Norway are leading the way. In a country with a 90% digital customer base and cash transactions account for approximately 9% of retail (C2B) spending, the banks support clients who opt for an electronic channel for self-service, resulting in less than 3% reliance on call centers or traditional branch banking.

Strong alliances between industry participants and their trusted partners will help make this journey to a fully digital (and very soon…) cognitive bank, easier and increasingly profitable. Becoming digital will be the new minimum, as banks apply machine learning and other related capabilities to better understand their business and, more importantly, their clients. These are truly interesting times. Banks are making the leap to becoming a digital bank – and, on the horizon, transforming to a cognitive bank.

For more information about how to accelerate service delivery, check out Financial Transaction Manager.

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