By Aniruddha Maheshwari, Payments Consultant at Icon Solutions
Payment hubs are often seen as the go-to solution when approaching instant payments schemes. These hubs are ‘centralized payments platforms’ which provide a unified view of payments activity and business.
However, traditionally these systems were built for handling bulk payments which are processed in batches where settlement is almost never in real-time. They were not designed to meet the needs of instant payment schemes planned in Europe (SEPA Instant Payments and Hungary Instant Payments) and the US (TCH Real-Time Payments).
As a sizeable number of European banks have payments hubs, the focus is moving towards extending the services of their existing hub to handle instant payments as well. While these hubs were specifically designed to support older functionalities i.e. bulking, de-bulking, warehousing, repair, re-route, retry, etc; with instant payments, those traditional requirements do not have the same relevance.
The instant payments challenge
Instant payments are 100% straight-through-processed leaving no room for manual intervention. Alternative payment paths and technical failures must be dealt with in an automated fashion, in real time, and with full certainty. This fundamentally removes the need for a lot of technical overheads that come pre-packaged with traditional hubs, and instead leaves room for automated recovery processes. Changes to the existing architecture can be complex and costly and remove the uniformity that payments hubs need to provide.
Payments schemes often differ from each other in terms of nature, priority or availability. As a result, payment hubs tend to require design changes with every new scheme creating more complexity over time. For example, traditional payments schemes only work for certain parts of the day, while new schemes work 24/7. The end-of-day batch jobs are not required due to near real availability of reconciliation information. Backend systems i.e. accounting, sanctions, AML, etc. also need a change in behaviour to support 24/7 payment processing.
Beyond plugging the gaps
Investment in a pluggable framework designed specifically to handle instant payments is the best option. This framework needs to be capable of:
- Easy integration with the existing hub, allowing banks to orchestrate separate flows created specifically for instant payments i.e. without affecting the existing payment flows
- Being light-weight, scalable and extensible to support the addition of new instant payments schemes without disturbing the core engine
- Allowing for payments data to be exposed via a list of RESTful APIs thus reusing the bank’s existing payments dashboards and maintaining a seamless user experience
- Architecturally, taking the form of a mini-hub, specifically for instant payments.
Towards an instant solution
Finally, to speed-up the solution implementation and participation in these instant payment schemes, focus moves to reducing the cost of customisation by opting for a solution which does not need resource hungry bespoke development and an architecture flexible enough to respond to emerging customer, business, and regulatory demands. This is the primary driver to move away from massive, resource and customization hungry hubs to a lean and scalable instant payments framework.
Icon Solutions’ Instant Payments Framework (IPF) was designed specifically to address the needs of banks wanting to introduce instant payments services to their customers, or to extend the reach of their existing systems into secondary markets.
IPF enables fast implementation, dramatically reduces total cost of ownership and drives the development of compelling new digital services.
Created as a result of front-line experience gained from instant payments implementations around the world – UK Faster Payments, Singapore G3 FAST and Europe’s SCT Inst scheme – IPF embodies expertise which enables banks to avoid many of the common pitfalls and bumps in the road associated with instant payments adoptions, whilst also providing a cost-effective, future-proof, and flexible solution.
Icon Solutions has provided IT strategy, architecture, and design consulting services to financial institutions for more than 16 years. It has a focus on global payments, with a specific focus on defining, architecting, and delivering instant, or real-time, payment solutions internationally. Several of our team members have been actively involved with the development of the UK Faster Payments Service and we have worked on Faster Payments implementations for a number of banks in the UK. Recently Icon completed a project for a tier-1 retail bank implementing the UK’s first open banking API services.