Instant payments require highly available banking systems with short response times
Blog
7/4/2024
Instant payment poses challenges for banks. Those systems that book payments individually and are directly connected to the processing platform have an advantage when switching to the new payment standard. An «Insight» by Saad Ahmed, Solution Architect at Finstar.
In Switzerland, bank payments are processed via Swiss Interbank Clearing (SIC). The fifth version, SIC 5, forms the basis for instant payments, which will be introduced in Switzerland in August 2024. Larger banks are obliged to be able to receive payments. However, only a few banks will offer their customers the option of sending instant payments from the outset. There are various reasons for this. For example, the new end-to-end payment processing requires highly available systems with short response times. Various elements such as the core banking system, payment gateways, compliance applications and end user interfaces must be seamlessly integrated.
We only had to adapt the protocol connection to the SIC platform for instant payments.
A distinction must be made between systems with a direct and indirect connection. Indirect connections communicate with the SIC system via a gateway from a third-party provider. Our system, on the other hand, has direct SIC access, which we set up back in 2004 (then still for SIC 3). Another challenge in the introduction of instant payments arises due to the method of posting payments. Many banking systems today process collective postings in so-called batches at regular intervals. In principle, this procedure is no longer possible for instant payments.
An additional application is required so that every booking in a batch system can be executed immediately. However, this is dependent on the synchronisation of various information with the existing system, which leads to complex reconciliation and synchronisation processes. We didn't have this problem, as we have always been able to post each payment directly and individually. In principle, we only had to adapt the protocol connection to the SIC platform for instant payments. The rest runs in the previous system architecture (see graphic).
We can assume that fintech companies will help instant payment achieve a breakthrough with further innovations.
Instant Payment is also available to other banks and fintech partners that use our system. Fintech companies have created some very good user experiences around traditional financial services. We can assume that they will help Instant Payment achieve a breakthrough with further innovations. Account-to-account payments at the point of sale of retailers are also becoming conceivable. Theoretically at better conditions than those offered by the existing networks for credit and debit cards, because fewer parties are involved. However, there are also increasingly important factors to consider, such as fraud prevention and fraud management.
The card networks have already comprehensively established fraud management in their processes. There is still potential for expansion in this respect with instant payments. Retailers also need to be connected to the instant payment infrastructure. A solution for this will not be on the table overnight. The conflicts of interest between the groups involved in the current payment system also need to be resolved. Nevertheless, we believe that instant payments will enable real innovation in the Swiss banking business.
(Translation with deepl.com; the German version is authoritative).
This article is a slightly adapted version of an article that first appeared in Netzwoche.
Hypothekarbank Lenzburg AG will offer instant payments free of charge from summer 2024
