A new report from FIS argues that the current shift to instant payments – set to total more than one in three transactions by 2030 – represents the start of a second digital finance revolution which will see both retail and corporate customers enjoy faster, safer and more personalised financial services.
In their new study, FIS note the rapid changes that have occurred in payments over the last decade, and say there’s much more to come.
By the end of the 2020s, banking will undergo a transformation powered by the ongoing explosive growth in processing power and global access to superfast broadband.
In ten years’ time, financial institutions will more closely resemble modern streaming and digital media industries, with both retail and corporate clients receiving fast, secure and convenient payment and banking services similar to those found in digital content and platform-based e-commerce.
Instant payments: the transformation begins
While the advent of digital banking and use of digital wallets over the last ten years may appear transformative, in many cases these developments have been achieved through patching, bolt-ons or additions to existing legacy systems.
These legacy systems have become increasingly expensive to maintain and unfit for purpose: McKinsey & Co estimate[1] that banks currently spend up to 70% of their tech budgets maintaining legacy software.
As banks struggle with these complex and expensive legacy systems, change is already underway.
The huge growth in instant payments seen recently is a bellweather for this change.
The World Bank reports[2] that instant payments are growing at 35.5% compound annual growth rate (CAGR) around the world, and currently enjoy a market share of 38% on average across the Asia-Pacific region, with some markets such as China operating well above this average.
In their new report, Instant Payments: a second revolution in digital finance? FIS claim that the rise of instant payments across the second half of this decade will see the delivery of fully-digital banking, including new products and services based on the ISO 20022 data standard.
Early examples of such products are already in evidence, such as FedNow in the US or Switzerland’s SIC.
This new era will also see the emergence of new regulatory frameworks and more secure, faster and frictionless payments both domestically and across borders.
Again, early signs of this trend are already evident, with the European Payments Initiative (EPI) announcing plans for a pan-continental instant payments network
Markets such as Thailand, Singapore, Malaysia, Indonesia and India are also linking their domestic systems to enable businesses and individuals to pay for goods and services instantly across borders.
FIS say the rise of instant payments will herald a genuine transformation in banking, challenging banks to reinvent their businesses for the digital era.
If banks carry on with the status quo, they risk implosion due to continued reliance on systems that cannot cope with the huge increases in transaction volumes and processing speeds we will see over the next five years.
As instant becomes the norm, FIS predict that clients of all kinds will come to expect new products and services based on the ISO 20022 standard – while also expecting these services to be delivered rapidly through digital channels.
By implication, banks should be looking to replace their legacy systems with new, fit-for-purpose tech stacks that ensure customer convenience, security and privacy while maintaining compliance and a great user experience.
FIS’s study also sets out the optimal means to achieve transformation in banking systems via a step-by-step programme that minimises risk while delivering rapid improvements in service and controlling costs.
By transforming their systems on a step-by-step basis, banks can optimise gains in those areas of their business that deliver the best results in terms of cost reduction, greater efficiency or improved client service.
Having delivered “quick wins” through carefully-selected projects in priority areas, banks can reduce overall running costs and free up more capital to invest in the new products and services based on the ISO 20022 standard that tomorrow’s clients will expect.
To learn more about why instant payments will drive a second revolution in digital banking, download the new report from FIS today.
[1] McKinsey & Co, 8 September 2022, “Winning in digital banking”
[2] The World Bank, 2023, “The Future of Fast Payments”
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