Seconds Matter: Disrupting the Status Quo of Money

‘Tom Fairbairn, Distinguished Engineer at Solace’

The financial landscape is undergoing a significant transformation, driven by the rapid adoption of digital technologies and the growing demand for faster, more efficient payment solutions. The UK’s Faster Payments Service exemplifies this monumental shift towards instant financial transactions, facilitating over 2.5 billion payments in a single year. Real-Time Payments (RTPs) have emerged as a game-changer, offering secure, instantaneous, and round-the-clock control of funds, revolutionising the way businesses and consumers transact and bringing about improvements in efficiency, customer satisfaction, and adaptability across various sectors.

As the demand for real-time payments surges, financial institutions and businesses must adapt to stay competitive, delving into the transformative potential of RTPs and uncovering the challenges and opportunities that lie ahead in this rapidly evolving landscape.

Hardening High-Stakes Systems Against Uncertainty
With the recent launch of the FedNow Service in 2023, the Federal Reserve’s instant payment system is now equipped to handle the anticipated surge in real-time payment volumes.  The scalable and resilient design allows it to accommodate the expected influx of transactions and support the growing demand for real-time payments.

Like the FedNow Service, other real-time payments systems must also scale effectively to manage exponential growth without compromising performance or security. Similarly, building resilient capacity capable of absorbing usage spikes represents a pivotal challenge for financial systems striving to uphold accessibility and reliability amidst digital payment proliferation.

Sophisticated hardware, software, and network solutions are the key to scalability. Cloud computing’s elastic scalability dynamically adapts to changing demands, while distributed architecture ensures resilience.

SWIFT leverages cloud and data innovations in cross-border real-time payment tests, showcasing how advanced technologies meet financial sector needs for fast, reliable international transactions. Distributed architectures disperse the load, ensuring system resilience and performance. This was evident in SWIFT’s testing in a sandbox environment with multiple central and commercial banks, which supported almost 5,000 transactions between different blockchain networks and traditional fiat currency.

By implementing Event Driven Architecture (EDA)- an architectural model optimising real-time data flow – RTP systems can react rapidly to spikes without compromise. This precise, streamlined event framework meets demands engrained in RTP’s DNA by enabling systems to fluidly scale, uphold resilience and maintain security as usage intensity accelerates.

The New Compliance Frontier
Global financial regulations present a significant challenge for RTP implementation. Currently, 137 out of 194 countries have enacted laws to protect data privacy and security. This requires businesses to maintain constant vigilance and adaptability.

To comply with regulations like Europe’s General Data Protection Regulation (GDPR) and similar privacy mandates, banks have to implement enhanced security measures and data protection protocols. The regulatory environment is complex, marked by pivotal regulations like PSD2 in Europe, which mandates robust security and open banking standards, and the Payment Services Directive in the U.S. which emphasises transparency and consumer protection.

Compliance automation tools and RegTech solutions can streamline compliance processes for businesses. However, to truly transform end-to-end workflows and fully unlock value over time, it is essential to thoughtfully embed compliant-by-design automation within a robust governance framework.

BankNewport leveraged The Clearing House’s RegTech toolkit to accelerate processing and cross-border operations when implementing RTP – delivering immediate efficiency gains. While the RTP migration did streamline operations, it’s important to note that RegTech solutions alone may not deliver transformative results. To unlock enduring enterprise progress, organisations must synergise people, processes, and cutting-edge technologies against structured transformation roadmaps, ensuring a deep-rooted transformation aligned with overall goals and strategies.

Balancing Speed and Controls in Real-Time Payments
The adoption of Real-Time Payments (RTPs) innovation is on the rise in the digital financial landscape as the industry charts toward seamless globalised transactions. According to a report titled “Real-Time Payments: The Fast Track To The Future Of Corporate Payments” by PYMNTS, a leading financial services publication, the adoption of Real-Time Payments (RTPs) innovation is on the rise in the digital financial landscape as the industry moves towards seamless globalised transactions. The report found that executives are well-informed about the benefits of RTPs, and many are eager to adopt them. It also reveals that a majority of organisations have either already integrated RTPs into their systems or plan to do so in the next three years.

The drive to innovate and the increasing consumer adoption of RTPs necessitate robust security measures to mitigate fraud and breach risks from instant transactions. One example of corporate-driven RTP modernisation is event-streaming solutions which enable banks to decouple front-end mobile applications from back-end transaction systems. This approach facilitates faster consumer payments by supporting popular APIs while preventing impacts on core processing infrastructure.

Event-streaming technology also connects businesses and payment issuers through modern protocols to unlock web and mobile applications with embedded real-time functionality. These innovations spotlight opportunities to accelerate B2B and B2C speed and performance by highlighting capabilities for next-generation real-time payments

The 36% growth trajectory of the implementation of RTP signals real-time payments’ pivotal emergence as the next frontier of finance – expected to exponentially outpace the industry from $17B in 2022 to nearly $200B by 2030. Seizing this potential demands infrastructure and vigilance moving with similar urgency.

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