Felipe Peñacoba, CEO of Payments Hub, Santander Group’s global payments platform
The payments industry is obsessed with speed. Billions of dollars are invested each year into trimming seconds into milliseconds and milliseconds into nanoseconds. Digital transformation and regulation have delivered near real-time and instant rails across numerous markets, both of which are remarkable technological achievements that move money faster than ever before.
Scratch just below the surface, however, and there lies one of the industry’s great ironies: we have built instant rails, but we run them on batch-era operations and reporting mechanisms. Successful payments may settle in seconds, but a number still fail for a multitude of different reasons, from incorrect account information to authentication failures, and these failures are not always flagged in real time. It’s almost as if we have electrified the tracks but left a Victorian-era steam locomotive on the rails. The promise of near real-time payments is mismatched with their reporting mechanisms, and this is becoming increasingly difficult to sustain.
Keeping up with the pace of change
The pace of technological change over the past two decades has made payments modernisation messy, slow, and expensive. Over two-thirds (67%) of banks struggle with the rate of change in payments, and this is little wonder (Source: Redcompass Labs). A relentless stream of new mandates, new rails and new expectations has left decision-makers balancing innovation against stability, while integration teams grapple with expanding backlogs. The push for faster payments and the rapid integration required has, if anything, intensified the operational burden.
That pressure is compounded by outdated infrastructure. Many banks still run on systems that are decades old, and not suited to the needs of modern customers. These legacy systems are unable to withstand the speed, volume, and security that is required for instant and near real-time payments. Integrating instant payments with these systems and setting up secure connections, complying with anti-money laundering (AML) measures, and preventing fraud all add further considerations. What should be a leap forward in capability often becomes an additional layer of complexity on top of already strained foundations.
When thousands of payments are pushed through these creaking systems, what happens when they fail? The financial impact of operational fragility isn’t abstract. Downtime is estimated to cost the global economy up to $400 billion annually (Source: Oxford Economics). On the other hand, many payments modernisation projects are delayed and almost nine in ten (87%) exceed budget (Source: Redcompass Labs). The ambition to modernise is clear, but the path isn’t smooth. As instant payments scale, the tolerance for operational blind spots shrinks, and the margin for error in a near real-time ecosystem is thinner.
Simply put, consumers and businesses cannot – and will not – wait for an overnight report or the next business-day reconciliation cycle. Real-time rails demand real-time awareness.
Building operational intelligence into near real-time payments
The next phase of near real-time payments will not be built solely on settlement speed, but by operational intelligence. Speed of payment should not be the only thing of importance to banks; speed of response is also critical. Today’s ‘bolt on’ of near real-time payments will not reach their true potential if they are not supported by operating models built for continuous monitoring, exception management and rapid decision-making.
It’s true that replacing decades-old core infrastructure is a long-term undertaking, measured in years rather than months. But the industry does not need to wait for full transformation before improving how near real-time payments are run. Practical steps, such as implementing unified operational layers that provide instant visibility into payment status, flag failures as they occur, and allow teams to drill from system-wide flows down to individual transactions, can bring near real-time operations within reach.
In practice, the challenge is not the 99% of payments that process successfully automatically. It is the small percentage that require human attention, such as the parked transaction, or the instant payment that never reached its intended destination. Even a fraction of a percentage becomes significant when institutions process millions, or billions, of payments each year. When a customer asks, “Where are my funds?”, operations teams must be able to see the answer immediately, not across fragmented systems or delayed reports, but in one consolidated, real-time view. Teams must be able to intervene, repair and redirect transactions in the moment.
In several jurisdictions, instant payments are becoming mandatory, and must be treated as foundational infrastructure. But infrastructure is only as strong as the systems that support it. Modern payments must not aim to solely shave milliseconds off settlement times, but build the operational intelligence to match such an impressive technological feat.
