Our first article in this series established the huge growth today in global instant payments both domestically and across borders.
Below, we examine the challenges this creates for banks struggling to keep pace with change while remaining compliant with increasing regulation.
Instant payments are popular with consumers and businesses alike because they enable the faster movement of money, lower costs and more rapid settlement of funds – as we discuss in our new report.
Anticipating further growth, regulators are taking action to enable instant payments, from the US launching FedNow and Europe mandating the SCT-Inst standard for all domestic and cross-border instant transactions inside the bloc from January 2025.
“As instant payments continue to grow, we expect banks to feel more impact.”
Data from the European Payments Council (EPC) suggests volumes for SCT-Inst payments are rising fast.
By April this year, the system was recording over 2.8 million SCT Inst transactions per day, up more than 20% in a year[1].
Consumers and businesses in the UK and US are also positive: a 2022 UK survey showed[2] that 77% of consumers now expect instant payment and settlement at all times, while a survey for the US Federal Reserve[3] earlier this year said 86% of US businesses and 74% of consumers had used instant payments in the last 12 months.
As instant payments continue to grow, we expect banks to feel more impact.
From a systems perspective, our new report outlines why banks that have not yet embarked on full-stack transformations of their software architectures are going to find the management of instant payments impossible.
That’s because they will be handling higher volumes of transactions at greater velocity than in any time in their history.
Beyond systems: standards and regulation
However, the instant era isn’t just about systems transformation.
To enable instant payments world-wide, all financial services companies will have to operate on a single data standard.
The report explains how the International Standards Organisation (ISO) introduced Data Standard 20022 to provide a common platform for sending payments messages and exchanging data using a central dictionary, standard modelling methodology and a series of defined Extensible Markup Language (XML) and Abstract Syntax Notation (ASN) parameters.
On top of this new data standard, regulators are introducing new requirements to ensure consumer and merchant safety as payments moves into the instant era.
These measures include the EU’s Digital Operational Resilience Act (DORA) in January 2025, which mandates that banks, their suppliers and third party partners must maintain compliance with stringent cyber-security requirements or face fines.
Meanwhile, the EU’s third payment services directive (PSD3), expected to become law in 2027-2028, is likely to further strengthen existing requirements under PSD2 relating to Strong Customer Authentication (SCA).
In summary, banks face a challenge to improve systems-wide capacity, speed and scope of function for the instant era.
However, they also face the introduction of a new data standard in ISO 20022 – as well as new regulatory pressures.
Taking these factors together the report clarifies why this means banks will need to completely rethink their practices in areas such as Know Your Customer (KYC), authentication and Anti-Money Laundering to enable them to operate in real time – or face the risk of fines and sanctions.
Likewise, anti-fraud systems will need overhauled to monitor and manage suspected fraud in real time – something that’s particularly important given recent growth in AI-driven fraud such as Account Takeover (ATO) and synthetic ID.
Handling first party fraud such as chargebacks and APP scams, second party fraud proliferated by money mules and traditional third party fraud cases efficiently is also vital as new services are developed on top of instant payment rails, such as Authorized Push Payments (APP), Request to Pay (R2P) and more.
For more on the impact of instant payments on risk and regulation, download “Instant Payments: a second revolution in digital finance?
[1] CPG Consulting, 28 August 2023: “SEPA Instant Payments progress”
[2] Tink, 18 May 2022: “UK consumers expect fast and frictionless payment journeys”
[3] PYMNTS, 16 February 2024: “Consumers Prefer Instant Payments”
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