Bridging the Instant Payments Divide: Why Financial Institutions Must Act Now
By 2028, most financial institutions (FIs) will be able to receive instant payments, but far fewer will be able to send them. A recent U.S. Faster Payments Council survey shows that while 70-80% of institutions expect to receive instant payments, less than half will be prepared to issue them. This disconnect reduces the benefits of instant payments, and the resulting gap shows that institutions that drag their feet on payments modernization will be left behind in a competitive, fast-moving market.
Instant payments deliver significant advantages: immediate sending and receiving of funds, 24x7 operation, better liquidity access, and the opportunity to bring innovation to customers. FIs cannot meet customer demands for speed, reliability, and transparency without full functionality, and instant payments are the latest frontier in digital transformation. Failure to bridge this disconnect leaves FIs extremely vulnerable to more agile competitors, including both FIs and disruptive FinTechs, and puts their market share, customers, and internal talent at risk.
Action must start with a clear strategy. To avoid being left behind, institutions must assess their current systems and identify gaps that hinder instant payment capabilities. This assessment should include technical infrastructure, organizational readiness, and customer expectations. From there, they should prioritize investments in technology and partnerships that address these gaps effectively. Many FIs face internal hurdles in their quest for modernization, and limited human and technological resources will hinder progress and leave institutions susceptible to disruption. This is where strategic partnerships must come into play.
Causes of the Gap
How did FIs get here? The sending-receiving disparity arises in part from concerns about compliance and fraud. While these concerns are valid, they delay business growth and industry-wide innovation, and hesitant institutions risk falling further behind. The recently published U.S. Faster Payments Council guidelines recommend tools like fraud prevention technologies, alias directories, and user authentication interfaces to address these issues and encourage broader adoption. However, hesitation isn't solely about fear of fraud or compliance burdens.
According to a 2024 Datos Insights report, many smaller institutions face financial and technological constraints, making adopting advanced payment systems challenging. The issue is compounded by a lack of skilled resources to manage the transition. These barriers slow the implementation process, creating a situation where only larger, resource-rich organizations can fully capitalize on instant payment technologies.
The gap also highlights a deeper, arguably more concerning problem: a fragmented approach to modernization. Many institutions still rely on legacy systems that cannot easily adapt to new technologies or standards. The lack of interoperability between older systems and modern payment hubs creates significant roadblocks, widening the divide between sending and receiving capabilities.
Traditional FIs that remain committed to using their antiquated systems face hurdles in retaining clientele as business needs change. While 74% of companies favor traditional FIs for faster payment services, a growing number are embracing partnerships with disruptive fintechs to fulfill their evolving payment requirements.
Modernizing for Instant Payments
The path to bridging this gap requires modernizing payment systems, where institutions will:
- -Increase Efficiency: Modernized systems eliminate inefficiencies, saving money, time, and resources.
- -Meet and Exceed Customer Expectations: Providing instant payments aligns with consumer and business priorities for speed, transparency, and cash flow management.
- -Deliver New Value-Adding Services: By creating a real-time payments-based platform with advanced features such as real-time reconciliation, Request to/for Pay, and real-time bill pay.
- -Transition to a 24x7 Operating Model: In addition to meeting demand for speed, consumers can send and receive payments in real-time, including evenings, weekends, and holidays.
Upgrading to ISO 20022 standards also brings added value. Unlike older systems, ISO 20022 attaches detailed information to transactions, such as supply-chain data, invoices, and purchase orders. This added context benefits industries like healthcare, manufacturing, and logistics, where data-rich payments optimize operations.
Adopting ISO 20022 enhances functionality and facilitates new opportunities for institutions to differentiate themselves. With enriched data capabilities, banks empower their customers with value-added services such as improved reporting and predictive analytics, catering to increasingly sophisticated needs. This shift transforms payment systems from simple transactional tools into strategic assets for growth.
According to the Omdia Universe: Payment Hubs, 2024–25 report, spending on payment hubs is expected to grow significantly, reaching $3.4 billion by 2028. Modern payment hubs, especially those built on low-code, API-driven platforms, will drive this transformation, providing scalability, adaptability, and efficiency.
Modern payment hubs also offer flexibility in deployment, whether on-premises, in the cloud, or through hybrid models. Cloud-based platforms, in particular, deliver cost efficiencies and scalability, allowing smaller institutions to modernize without overextending budgets. As cloud adoption becomes more prevalent, the payment environment will shift, leveling the playing field for institutions of all sizes.
Partnering for Success: Overcoming Obstacles and Driving Innovation in Financial Services
Institutions can access specialized expertise and cutting-edge technology by collaborating with external providers. This unlocks tangible benefits, including:
- -Enhanced Capabilities: Partnerships provide access to specialized knowledge in critical areas such as fraud detection, regulatory compliance, and data integration. This accelerates the adoption of crucial capabilities like instant payments, ensuring institutions can meet evolving customer demands and operational needs.
- -Future-Proofing Operations: Emerging new financial technologies like cryptocurrencies and central bank digital currencies demand agility and adaptability. FIs can effortlessly integrate new payment methods and remain competitive by leveraging modern platforms and partnering with providers who understand these trends.
- -Overcoming Internal Resistance: Modernization initiatives often face internal resistance. By demonstrating the tangible and financial benefits of new systems and technologies through successful partnerships, FIs can build consensus, drive adoption across all levels of the organization, and ensure a smoother operational transition.
Strategic partnerships are a must for FIs to rely on for sustainable success and compliance. By embracing collaboration and leveraging the expertise of external providers, FIs can break down internal silos, overcome operational hurdles, and unlock new avenues for growth.
Immediate Action Required
The time to act is now. The gap between sending and receiving instant payments is not just a technical issue—it's a strategic risk. Institutions that delay modernization risk losing relevance in a market where speed and efficiency dominate. By leveraging modern technologies, FIs can unlock the full potential of instant payments, delivering value to customers and maintaining their competitive edge.
Education is another critical component of this transformation. Many decision-makers within FIs are unaware of the full potential of instant payments or the risks of inaction. Institutions who invest in training and awareness campaigns will build and solidify the required internal support to drive change.
Finally, regulatory bodies and industry groups must facilitate this transition. Clear guidelines, like those provided by the U.S. Faster Payments Council, are essential for ensuring that all institutions have a roadmap for modernization. FIs that embrace modernization will close the gap between sending and receiving instant payments and position themselves as leaders in the future of payments and the wider finance sector. The alternative—falling behind—is a risk no institution can afford to take.
About Author:
Deepak Gupta is EVP of Engineering, Product, and Services, at Volante Technologies. A career innovator in cloud and software-as-a-service, his industry experience includes senior executive roles as General Manager at CoreLogic, President and CEO at Workstream, and CEO at iSpheres. Deepak was also SVP and GM of Peoplesoft’s and Chief Architect of Oracle’s SaaS business units, where he led the organizations’ transformation from on-premise enterprise software providers to SaaS leaders. Connect with him on LinkedIn: https://www.linkedin.com/in/deepakgupta44/