Carsten Wengel, CEO G+D Netcetera
The race is now on to integrate the technology and infrastructure needed for secure instant payments, where money is sent and received in under 10 seconds. Under the Instant Payment Regulation (IPR), EU banks have already faced the January 2025 deadline to receive instant payments. By October, they must also be able to send them
But a pressing regulatory requirement isn’t the only reason for institutions to incorporate instant payment solutions. This innovation can enable faster transactions, improve cash flow and drive new consumer services, such as such as paying bills instantly through banking apps by leveraging existing card networks. However, faster payments demand faster security – and traditional fraud detection is simply too slow to keep up.
The transformation of transactions
Instant payments are set to supercharge transactions by offering clearing within seconds. This will enable consumers and businesses to receive money much quicker to cover other costs and investments. They will also enable the development of business models that weren’t possible before. This includes real-time marketplace payouts, instant insurance claim disbursements and wage access on-demand. These services hold enormous benefits for both businesses and consumers, but banking systems will face significant challenges as settlements shift from taking days to being completed in mere seconds.
Another challenge with the rise of instant payments is that they attract not only businesses and consumers, but also fraudsters. With funds available instantly and systems operating around the clock, bad actors now have far greater opportunities to exploit and commit fraud. Therefore, banks and payment service providers must deploy systems capable of operating at unprecedented speed – detecting and stopping fraud as quickly as transactions are processed.
The core security challenge with instant payments is that funds are immediately available in the recipient’s account and can be transferred onwards within seconds, making. This recovery practically impossible once money has left the original account. This speed has enabled “money muling” schemes, where criminals move funds through multiple accounts, sometimes across borders, within minutes, making tracing extremely difficult. Cross-border instant payments add another layer of complexity, as they can involve different regulatory frameworks and fraud prevention systems that don’t always align, further complicating detection and recovery.
Security and integration for adopters
With numerous security challenges on the horizon for institutions, adopting faster payments in a secure way may seem like an insurmountable task, particularly where integration with existing systems is adding another hurdle. To tackle both concerns head-on, a specialist partner can plug cloud solutions into existing payment systems, enabling banks, payment service providers and other institutions to facilitate instant payments without disruption. Institutions don’t need to rip out long-established systems or interrupt any crucial processes.
The next step is to then secure instant payments from the threat of fraud. AI innovations are now enabling banks to automatically spot any unusual activity in milliseconds, helping them to stay ahead of threats. Unique profiles of customers can be devised based on how they usually use their accounts, with any unusual deviations then flagged. In addition, strong authentication methods, including biometrics, secure tokens and FIDO standards can create strong defences against attempted authentication compromises. Crucially, these methods take the security burden away from consumers, ensuring they stay protected even if they are targeted by convincing scams.
Verification of Payee (VoP) processes can now confirm the authenticity of the recipient before any funds leave a customer’s account. Part of this process is verification that the intended recipient’s IBAN number matches that of the account holder as per the bank’s records. This process lasts no more than five seconds, ensuring that the speed of the payment isn’t affected. Integration of VoP processes will be a mandatory requirement of the IPR in October, adding extra urgency for banks to integrate the underlying infrastructure and technology ahead of time.
Instant payments as the standard
With regulatory deadlines for fast payments looming, banks and payment service providers can’t afford to delay, yet compliance should not be viewed as the sole driver. Instant payments create opportunities for new services, stronger customer experiences and better cash flow management.
At the same time, though, the speed and convenience that make them so attractive also introduces heightened fraud risks. Success hinges on deploying the right technology without disrupting core systems, while embedding real-time security that operates at the same speed as the payments themselves. The institutions that act now will thrive in a financial future where instant payments are the standard.
