The challenges of creating a true real-time payments ecosystem

Real-time payments are payments that are initiated and settled near-instantaneously. For countries that have adopted real-time solutions, there is now an expectation that consumers, merchants, and financial institutions can pay friends and customers, settle bills, and transfer money immediately. The rapid rise of this technology worldwide has placed pressure on infrastructure to match customer expectations.

While domestic real-time solutions have grown exponentially over recent years, from 14 nations in 2014 to 58 in 2022, there are several obstacles which are stagnating the creation of true, real-time payments interoperability and an infrastructure which facilitates global real-time payment rails.

Interoperability challenges stunt global expansion

A key challenge of the growing real time payments architecture, now encompassing nearly 60 countries worldwide, is that it remains inherently domestic. Europe’s real-time payments landscape is currently an assortment of different payment infrastructures which have all developed independently and aim to meet the needs of domestic consumers. The absence of synergy between the systems is prohibiting global interoperability, and on average international bank transfers can still take anywhere to up five working days to complete.

Continued infrastructure growth is required to build a cross-border real time payments solution where customers can expect their international payments to be as seamless and fast as their domestic ones. While cross-border real time payments are catching up – slowly – the fragmentation and differing implementation approaches between nations threatens the value of real-time clearing and settlement.

Security & fraud concerns

Where money goes, fraud is never far behind. According to the 2021 AFP Payments Fraud and Control Survey Report 74% of organisations were targets of an attempted or actual payments fraud attack in 2020. One of the key challenges of real-time payments is that the risk of loss is different than with other type of transactions. Bank’s existing security structure is not fit-for-purpose when it comes to the limited time to process and manage real-time transactions. The growth of real-time payment has necessitated a fraud risk management approach which moves from the use of stagnant data to a solution designed for real time.

Effective real-time payment fraud prevention requires a solution that can detect multiple fraud types across all electronic funds transfer channels and payment origination mechanisms. Employing up-to-date processes and technologies is critical to meet increasing customer expectations while managing financial crime risk effectively.

Adapting legacy systems

Connecting real-time payments technology to existing legacy infrastructure is a complex task as many banks still utilise architecture developed over previous decades. Legacy systems were designed to facilitate batch processing and often lack the capability to process each transaction individually. From a practical perspective, real-time payments also necessitate a 24/7 system availability and monitoring, which is a challenge that legacy systems continue to struggle with.

Building a holistic view of their infrastructure and then modernising legacy systems using APIs to break down silos is one approach that could be taken by financial institutions to facilitate real-time payments. The other is acquiring capabilities to support large volumes of real-time transactions seamlessly and securely by partnering with third-party FinTechs experienced in the real-time payments space.

Conclusion

Acquired conducted a poll on social media earlier this month asking payment professionals ‘What is the most significant challenge facing the adoption of real-time payments?’ the most popular response with 43% of the vote was ‘Adapting Legacy systems’, ‘Security & Fraud challenges’ and ‘Global interoperability’ coming in second with 24% of the vote each, and just 10% though that slow processing times was the most significant challenges facing real-time payments.

While the sample size of this poll was small, this suggests that although the speed and flexibility real-time payments offers is universally recognised as a genuine alternative to traditional digital payments, the centralised infrastructure and connectivity surrounding this payment method hasn’t quite caught up. It seems that key to creating a secure, scalable, and interoperable real-time payments ecosystem is now to build networks that harmonise and protect the global infrastructure.