Financial Services

New challenges in payment operations due to instant payments

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Speed is an essential characteristic of instant payments – up to 99% are made within 5 seconds. Instant payments pose new challenges for Operations, bank departments, and their workflows. The harmony of all players involved in the transfers must be perfect. To avoid unfinished transactions, the communication process between banks and the clearing center should be designed so that such a situation can hardly occur.

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Immediately after initiating an instant payment by the client, a series of control steps usually take place to ensure that the instant payment takes place only if all participants in the payment chain meet the conditions for successful transfer completion.

Controls include verification of the client's payer's situation (including AML checks and fraud monitoring), availability of the recipient and his bank for settlement of instant payments, sufficient funds on the bank's nostro account at the clearing center, etc. Daily support for instant payments, including monitoring of all IT services, takes place 24 hours a day, 7 days a week, and 365 days a year.

Instant payments can reduce costs for Operations teams by eliminating client complaints or erroneous or fraudulent transactions. For banks, this is usually a very costly process, and from the regulatory point of view, the European Commission's steps lead to minimizing the number of such transactions. In the new legislation governing the conditions and obligations in the area of instant payments, it plans to introduce an obligation for banks to display the name of the payee to the client before making an instant payment. The European Commission hopes that this step will allow the client to identify an erroneous or fraudulent payment before making a transaction and not to consent to its execution. This measure aims particularly at protecting consumers and strengthening confidence in instant payments, but it will also contribute to reducing the costs of banks for possible complaint procedures.

Another area often taken care of by the payment back-office teams is the first-level inspections to fulfill the bank's obligations in the fight against money laundering and terrorist financing (AML/CFT). The speed of instant payments does not exclude banks from this obligation. However, the European Commission considers the current approach to screening, which is similar to that of current payments, to be ineffective due to the nature of instant payments. It, therefore, wants to introduce a procedure through the new regulation whereby any payment service provider offering instant payments in euros will be responsible for checking all its customers against the latest sanctions lists in force daily.

Such a "verified" client can make instant payments on the given day (until the subsequent verification on the following day). The screening will no longer take place during the actual payment initiation. Removing these checks primarily aims to accelerate instant payments further and reduce the number of declined transactions. However, it can be expected that such an approach may also significantly reduce the number of false positive seizures during transactions and, thus, banks' operating costs for AML/CFT monitoring.

It is also possible to use both innovations for standard batch payment processing, extending their benefits to long-term payment rails. Instant payments can bring fresh air to many areas, including Operations.

Combining all these automated checks before making an instant payment and setting up declined payment processing processes will practically reduce the involvement of the Payment Operations teams to a minimum. On the contrary, the pressure will increase for constant monitoring of all IT systems responsible for the automatic processing of instant payments and troubleshooting in the event of a service outage.

Trask brings our clients a unique combination of Payment Operation experience with activities, AML processes, validation of payment orders, and technological development of all necessary components and integrations, including API for finding details about the beneficiary's account number before the actual processing of SEPA instant payments.

Janka Vavrinkova, Project Manager and Business Consultant, Payments

Janka has connected her entire career with payments. During more than 18 years in banking, she has had the opportunity to participate in many development, regulatory, and transformation initiatives, both in the area of foreign and domestic payments. In Trask, she is dedicated to projects and activities focused on this area.


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