The Infrastructure Challenge for Instant Payments in 2024

As the payments industry gears up for 2024, exciting transformations are on the horizon.

Many, in fact, are already here.

And for those transformations that are just around the corner, they are often chasing existing consumer behaviors and business demands around speed, convenience and security.

In recent years, instant payments — providing the ability to transfer funds in real time without the delays associated with traditional payment methods — have gained traction in the financial industry as ecosystem actors increasingly recognize the significance of aligning modern money movement with modern payment expectations.

“A lot of instant payments is about moving toward this modern experience of being able to make a transaction and receive the money in real-time, as one does with everything else in their life. But the issue is first we need the infrastructure,” Sean Kiewiet, chief strategy officer and co-founder of Priority Technology Holdings, told PYMNTS for the series “What’s Next in Payments – Instant Payments: What will turbocharge Instant Payments growth in 2024?”

“There is the need for more developers and FinTechs to build apps and [push the ecosystem forward to] where we have a more ubiquitous experience for the end user,” Kiewiet said.

Instant payments offer a transformative solution for the future of money movement. As consumers increasingly expect real-time transactions in their daily lives, the demand for instant payments will continue to grow, he said.

“For B2B, I do think there are a number of interesting uses that will help with [instant payments’] speed to market,” Kiewiet added.

As adoption increases, the development of the necessary infrastructure will be, well, necessary.

Securing the Future of Money Movement

Separately, for the adoption of instant payments to successfully scale, security concerns around risk management and the trade-offs associated with non-reputable instant payments need to be addressed.

Financial institutions and payment providers must strike a balance between providing a seamless user experience and implementing robust security measures to protect against fraudulent activities.

“There are some protections for consumers that are not there for instant payments yet,” Kiewiet said. “All the fraud and bad behavior we’ve been dealing with [in payments] for years doesn’t go away with instant payments — it just gets harder.”

While instant payments offer convenience and speed, Kiewiet noted that users may also need to be willing to undergo additional identification processes that could become required by participating financial institutions to ensure the security of their transactions.

The importance of interoperability in instant payment systems can give facilitating cross-border transactions a shot in the arm, he added.

Collaboration between domestic instant payment networks and international instant payment systems can streamline the process of transferring funds across borders. By eliminating the need for multiple networks and platforms, instant payments can simplify cross-border transactions and reduce costs for businesses and consumers alike, said Kiewiet.

“If I can just go through your network [for instant payments] and go anywhere in the world, that’s the right answer,” he said.

Reshaping the Broader Financial Ecosystem

As instant payments gain traction, there is a predicted shift in revenue models and operational structures of financial institutions.

That’s because, as Kiewiet said, the impact of instant payments extends beyond individual transactions. Financial institutions will need to adapt their revenue models and operational structures to accommodate the shift toward instant payments, making liquidity management a critical consideration to hold sufficient funds to cover real-time transactions.

Financial institutions will need to find innovative ways to manage liquidity and balance the costs and benefits associated with instant payments.

In addition to traditional financial institutions, instant payments also hold the potential to reshape the payments landscape at a foundational level.

FinTech companies, marketplaces and neobanks are emerging as key players in the instant payments landscape. These non-traditional players have the opportunity to leverage instant payments to offer innovative financial services and enhance customer experiences. By integrating instant payment capabilities into their platforms, these players can provide real-time access to funds, improve reconciliation processes and cater to the needs of underbanked populations, Kiewiet said.

“I think momentum will continue, probably not massive adoption in 2024, but more players will start to solve more parts of the equation,” he added.

By addressing infrastructure challenges, enhancing security measures, enabling cross-border transactions, and embracing financial inclusion, instant payments have the potential to transform the way we transact and interact with money.