Instant Payments Made Easy: How credit unions can quickly modernize payment infrastructure
Clinging to legacy systems, cost uncertainties and a reliance on core providers are holding back FIs.
Instant payments are rapidly growing in popularity, responding to the needs of everyone from consumers and small businesses to global corporations. Financial institutions that already support an instant payments ecosystem open a wealth of new revenue opportunities and see a competitive advantage through reduced costs, flexibility to pay and be paid as customers prefer, and the benefit of a 24/7 service.
Yet the majority of financial institutions are still locked out of these many advantages. Finzly and the Faster Payments Council recently polled the industry to better understand the factors preventing more FIs from adopting faster payments.
In our report we found that many saw legacy systems and implementation costs among the biggest issues keeping them from instant payments offerings.
Common misconceptions
Roughly 73% of FIs surveyed in our study indicated they have challenges in their backend legacy systems managing instant payments. That’s because many FIs are working with legacy systems that weren’t originally built to manage today’s 24x7x365 environment of real time processing where settlements can take days to settle. Upgrading legacy systems has become a must especially if FIs choose to introduce services like FedNow and RTP.
We discovered that financial services leaders have a misconception that they must stick with their core providers to upgrade their offerings. In many cases this requires first an investment in a core upgrade and then a synchronization with instant payments services. To do both takes a significant investment in time, resources and money and it often discourages FIs from taking action because they think they must do everything at once.
Alternatively, FIs think they must settle for whatever the core offers when it becomes available, landing them at the end of a waitlist for receive functionality and with no possibility for send functionality.
Consider a sidecar for your core
Fortunately, however, today’s payments environment is much nimbler than it was in the past.
Sidecar cores combined with payment hubs provide the optimal solution. A sidecar core functions independently of the core, using only the core for basic posting and balance checks. Unlike legacy systems that are limited by batch processing and high maintenance downtimes, sidecar cores are real time and 24/7. They can centrally process payments through a smart payment hub maintaining connection to all rails via a unified API, enabling them to adapt to new standards like ISO 20022 and reduce costs through the need of only a single operations team.
Having modern infrastructure in place that’s designed for today’s fast-changing payments landscape offers long-term opportunities. However, what we found through our survey is that about 88% of FIs feel that costs of implementing technology to send instant payments creates challenges.
Integrated solutions
What FIs must understand is that by working with the right provider, implementation can be cost effective and efficient. The key is to choose a partner who can manage all instant payments needs, including send, receive and request for payment, and through both of the major rails operating today: FedNow and RTP. Tapping one integrated solution is the surer path to achieve the most return on investment.
Our survey makes it clear that many FIs aren’t yet ready to support an instant payments environment. They’re bogged down by legacy systems and the perception that upgrades are costly and time consuming and must be done through their core providers.
On a positive note, that’s simply not the case. Those with the right partner who can provide a modern, cloud-native platform that integrates easily into the core with ISO 20022 standards in place are best set up to be market leaders in the future. Getting there is easier and more cost effective than FIs might think.
This article originally appeared in BAI, written by Booshan Rengachari, founder and CEO at Finzly.
