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The dawn of real-time bank transactions is here

Arun Kini of Finastra says customer demands make it imperative for banks to embrace tech solutions.



Arun Kini, Finastra

In today’s fast-paced payment landscape, evolving industry standards, regulatory requirements, and heightened customer expectations are driving banks towards rapid transformation. Consumers and businesses alike desire instantaneous, frictionless payment options that align with their preferences and are available anytime, even on weekends or holidays.

While digital payments are proliferating across the globe, Asia Pacific has been a leader for some time: Japan pioneered the world’s first real-time payments network almost half a century ago. Development elsewhere has accelerated in recent years. Domestic real-time payments networks have been launching across the region, and many countries have started working in partnership to connect their networks, enabling fast, cheap cross-border payments. Research last year found that 69 percent of consumers in APAC had increased their use digital wallets, QR codes, buy-now, pay-later (BNPL) loans, cryptocurrencies, biometrics and other technologies in the previous 12 months, compared to 52 percent of consumers in North America and just 48 percent in Europe. 

The incoming ISO 20022 messaging standard sets the foundation for even more innovation in payments, with estimates suggesting the standard will be employed for nearly 80 percent of global payments volume by 2025. This new messaging standard is accelerating the adoption of instant payments, as it is used for services such as Singapore’s FAST network, the UK’s New Payment Framework (NPF), and the US’s FedNow to enable uninterrupted real-time transactions. 

New horizons, new hurdles

While instant payments offer quicker, more streamlined, and more user-friendly transaction options, they also present fresh challenges to banks, including initial investment requirements, implementation issues, and financial crime obligations.

A Finastra survey with Aite-Novarica (now Datos Insights) found that many financial institutions are currently in the process of deploying new payment rails, with 72 percent planning, being in the process of, or already having integrated them. However, 57 percent of respondents are facing challenges, with legacy infrastructure making modernization efforts extremely or very challenging, especially for smaller banks.

Furthermore, banks need to ramp up their efforts against fraud and other financial wrongdoings. Given the rapidity of instant transactions, they are left with little room to intercept malicious activities. Failure in timely detection can severely tarnish their reputation and result in major financial damage due to non-adherence to regulations.

The tech-forward transactional era

Emerging technologies are ushering banks into a futuristic payments ecosystem. Cloud computing and Payment as a Service (PaaS) platforms have lowered obstacles to entry. Using cloud-based instant transaction systems, banks can nimbly scale and modify their operations in response to the evolving demands of customers, industries, and regulators. PaaS helps banks modernize their payment capabilities at a reduced time to market and value, and at a lower Total Cost of Ownership (TCO). This also alleviates concerns about upfront investments in costly and complex infrastructure.

Technology companies such as Finastra are offering payment hubs that span high-value payments, mass payments and real-time payments, deployable on proprietary servers or in the cloud, and leveraging APIs to enable integration with third-party fintech services.

Artificial intelligence can analyze customers’ payment history to stop fraudulent activity and financial crime across many instant-payment infrastructuers, such as FedNow and TIPS. Finastra’s Compliance as a Service offering includes Fincom’s real-time AML transaction screening and ThetaRay’s AI-powered transaction monitoring, and it will soon be integrated with our global payments hub.  

We are also exploring applications for generative AI, for instance by creating additional transactions that look like fraud transactions. This can help train models that enable banks to identify new sets of fraud not seen before. AI can also enhance customer support capabilities, streamline upgrades and migrations, and deliver ever more contextual user journeys. With machine learning, automation and advanced analytics, banks can also optimize payment routing and processing decisions, reduce transaction times and ensure smoother payment flows to boost efficiencies.

The future direction of the payments industry opens huge opportunities for banks, if they can take advantage of the cutting-edge technologies that will enable them to stay ahead and customers’ evolving demands. To be successful, banks will need to find the right partners with combination of industry expertise, implementation support and the ability to offer the latest technology to solve real-world challenges.

Written by Arun Kini, managing director for payments in Asia Pacific at Finastra.

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