Future-proofing instant payments

Instant payments facilitate real-time fund transfers between accounts, typically within seconds. Unlike traditional card transactions, which may take days to settle, instant payments offer immediate confirmation and availability of funds. This speed and efficiency are reshaping consumer expectations and business operations alike. 

What sets instant payments apart from traditional payment methods is not just the speed, but the entire ecosystem built around immediate settlement. This includes enhanced security mechanisms specifically designed for rapid transactions and the ability to support a wider range of use cases, from emergency payouts to supply chain financing. 

Card rails have long been the backbone of electronic payments. However, the rise of A2A transactions presents a compelling alternative. By enabling direct transfers between bank accounts, A2A payments reduce reliance on intermediaries, potentially lowering transaction costs and increasing transparency. This shift is particularly significant in regions where open banking initiatives are gaining momentum, allowing third-party providers to initiate payments directly from consumers' bank accounts. 

PSD2 in Europe has been a key driver of this transformation in the payment industry. 

Despite this evolution, card-based systems won't simply disappear. Their cross-border capabilities and universal acceptance at points of sale worldwide ensure their continued relevance in the payment ecosystem. The future is not about replacement but coexistence and specialization. 

When transactions settle in seconds rather than days, traditional fraud prevention approaches need reimagining. The banking industry has responded with innovative payment security solutions like verification of payee (VoP, account verification), which verifies the recipient's identity before transferring funds. 

This security layer works by checking that the intended recipient's bank account number (IBAN) matches the account holder's name in the bank's records. By performing this verification before the actual instant payment, banks can significantly reduce payment fraud without compromising transaction speed. 

Additional security measures for instant payment processing include: 

• Real-time transaction risk scoring for each payment 

• Shared fraud intelligence between financial institutions 

• Advanced anti-money laundering (AML) monitoring 

• Strong customer authentication (SCA) compliance 

• Behavioral biometrics for user identity verification 

Digital wallets, such as Apple Pay and Google Pay, have revolutionized the payment experience by offering seamless, contactless transactions. These platforms often integrate A2A capabilities, further diminishing the role of traditional card networks.  

The evolution of NFC (Near Field Communication) technology has created new opportunities for banks and merchants to reclaim their direct customer relationships. By developing their own mobile wallet applications, banks can maintain brand visibility at the point of sale while leveraging the same contactless payment technologies that made Big Tech wallets successful. 

The key competitive advantage for banks in the digital wallet space is trust. In many European markets, banks still maintain a strong reputation as trusted payment providers—an asset worth protecting and leveraging in the mobile payment ecosystem. 

The transition towards instant payments and A2A transactions presents both challenges and opportunities for banks: 

• Revenue Models: With reduced reliance on card-based fees, banks must explore alternative revenue streams, such as value-added services and personalized financial products. 

• Infrastructure Upgrades: Implementing instant payment capabilities requires significant investment in technology and infrastructure to ensure security, compliance, and scalability. 

• Customer Engagement: Banks have the opportunity to enhance customer relationships by offering innovative payment solutions that meet the demand for speed and convenience. 

To navigate this evolving landscape, banks should consider the following strategies: 

• Invest in Technology: Upgrade core banking systems to support real-time processing and open APIs, facilitating seamless integration with third-party services. 

• Collaborate with Fintechs: Form strategic partnerships with fintech companies to leverage their agility and innovation in developing customer-centric payment solutions. 

• Focus on Security: Prioritize cybersecurity measures to protect against fraud and ensure compliance with regulatory standards, particularly as transaction volumes increase. 

• Educate Customers: Provide resources and support to help customers understand and adopt new payment methods, fostering trust and loyalty. 

The rise of instant payments and A2A transactions marks a significant shift in the financial services industry. For banks, embracing this change is not merely an option but a necessity. By proactively adapting to new technologies and consumer behaviors, banks can position themselves at the forefront of the next generation of banking.