Instant Payments – Expectations and Challenges

Rapid technological development of the past few decades has been recently accelerated even more during the years of COVID-19 pandemic due to the immediate rise of need in digital information exchange. Both private and corporate market players have faced the challenge of fast, reliable, and secure contactless exchange of information, payments, and services. Many new technological solutions emerged and have been incorporated much faster than it would generally happen. Along with that, the slop-build solutions, while met the urgent market requirement, need a lot of patching.

Now, when the pandemic-conditioned necessity in contactless information transfer is over, the world has already got used to the benefits associated with it. The market is ready for truly digital transformation, and experience-based demands and expectations are growing.

Instant payment on individual and business levels is one of the key expectations of today’s market and a great challenge to banks and other financial institutions.

According to the Federal Reserve Bank research, “8 out of 10 businesses will be choosing their bank based upon the immediacy of payment transactions.”

FedNow Program (the US) & SEPA regulations (EU)

Both the US and EU are getting ready to launch Instant Payment programs on their respective territories.

In the US, the Federal Reserve is planning to launch its very own Instant Payment service – FedNow – to its bank network. The FedNow Service “will be available to depository institutions in the United States and will enable individuals and businesses to send instant payments through their depository institution accounts. The service is intended to be a flexible, neutral platform that supports a broad variety of instant payments” (Federal Reserve on FedNow Service). The FedNow release date is planned for May-July 2023. The service will enable business of all sizes to provide 24/7/365 instant payment for their private and business customers.

In EU, the European Commission is working to create an efficient infrastructure for instant payments with the same rules all over the EU. It is aiming to create “a single payment area, which lets citizens and businesses make cross-border payments” instantly and with the same ease and safety as they do locally. Basically, this current proposal is an amendment to the 2023 SEPA regulations. The SEPA Instant Credit Transfer (SCT Inst) scheme was launched at the end of 2017, but has not been fully incorporated yet.

According to the European Commission’s research, approximately 70 million payment accounts in the EU do not allow their holders to send and receive instant payments in EURO. Besides, currently instant payments often cost much more than traditional money transfers.

What holds the launch of Instant Payments back? Why only about 13% of current payments are instant?

  1. 4% of cross-border euro instant payments get rejected by payment providers because of inefficient sanctions screening. 99.8% of them are rejected wrongly.

Just a side-note: all the alerted transactions need to be processed manually, which: (1) takes long processing times, (2) creates enormous workloads, and (3) negates the very idea of instant payments.

  1. 93% of consumers indicate that it is important to be protected from fraud or errors through IBAN-Name check service, which today is widely available on in one member state due to technological difficulties.
  2. Increased transactional volumes lead to an increased number of AML screening alerts that need to be processed. Current average alert rate is 30% (of which >90% are false alerts). For a mid-size bank, it means approximately 30,000 hours of manual processing per annum. This alone leads to enormous workloads and makes Instant Payment (i.e., payment in under 8 seconds) impossible.
  3. Instant Payment pricing has to be accessible to everyone. However, such aspects as cross-border transactions, multi-currency, and requirement for real time screening create greater workloads and, hence, lead to increased costs.
  4. AML aspect is one of the key obstacles standing on the way of implementing the Instant Payment programs. Insufficient AML sanction screening leads to considerable penalties, fines, and reputational damage. Sufficient AML screening leads to greater costs and prolonged processing times (no instant payment).

The issue of AML Sanctions Screening needs to be specified further:

Each market has its own requirements and regulation. Cross-border instant payments sanctions screening need to consider all these requirements and perform the screening in under 8 seconds.

Once-a-day check is not enough due to the market dynamics and constant updates to sanctions and watchlists and, consequently, due to existing requirements and regulations.

In simple terms: if you stumble upon any of the above (or any other) obstacles while processing an Instant Payment, it is not instant any longer.

Fincom’s AML System is the answer!

  • Real-Time Sanctions Screening performs precise screening in <200ms, supporting and enabling Instant Payments.
  • Screening in 44 languages in original alphabets enhancing gross-border sanctions screening: effective resolution of name spelling variations, transliterations, typos, and more.
  • Alert disposition: smart alert-suppression engine, resolves alerts automatically, reduces false positives rates, and operational burden. Reducing alert rates from >30% to ~3%.
  • Automations: smart automations, including Automated Alert Disposition, Persistence mechanisms, ongoing sanctions monitoring, automatic lists synchronization, updates & changes to sanction lists, and more.
  • No Missed Hits!

For more information on Fincom’s Real Time Sanction Screening, click here.

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