The looming compliance requirement
At a roundtable discussion on payment transformation at the last EBADay, audience polls revealed a telling trend in the banking industry: 75% of current payment programmes are focused on meeting instant payment regulations. Furthermore, 72% of participants identified compliance with upcoming regulations as the primary driver for these initiatives. In contrast, long-term strategic investments in payments infrastructure lagged significantly, with only 27% viewing them as a priority.
With the pressing need for regulatory compliance, many banks are focused on immediate solutions to avoid the risk of losing their licence. However, implementing instant payments presents significant challenges, and banks face two key hurdles.
The first hurdle is the state of many legacy banking systems, which are often unable to meet the stringent SLAs required for real-time payment processing. This challenge is made even more difficult by the increasing necessity of embedding real-time fraud prevention, a critical component for secure instant payments. The second hurdle comes from governments, central banks, and consortiums building new payment rails based on the ISO 20022 standard. This adds technical complexity that most legacy infrastructures are not equipped to handle. For more on the challenges posed by ISO 20022, see our blog post on why being ISO 20022 ready is not enough.
Given the complexity and urgency, it’s understandable why many banks may opt for the fastest, most straightforward path to implementing instant payments. No bank can afford to risk regulatory non-compliance, and adopting off-the-shelf solutions or subscribing to gateway providers offers a quick route to achieve this.
Future considerations
However, the instant payment landscape is far from static, and the ability to simply send and receive payments is just the beginning. As the ecosystem evolves, more overlay services and regulatory requirements will be layered on top of these capabilities. In the coming years, banks can expect to implement additional features and functionalities to keep up with these changes, some of which will be mandated by new regulations.
One of the most immediate developments on the horizon is the introduction of "Request to Pay" (R2P). These services are in various stages of rollout across different regions and represent a significant shift in how payments are initiated and managed. Banks will increasingly face the decision of either waiting for their current solution provider to add support for R2P or seeking a separate solution specifically designed to handle these requests. In the first scenario, the bank may lose control over a critical capability that has the potential to increase customer engagement. In the second scenario, they will confront the complexities of implementing and integrating a new service with their existing instant payment infrastructure.
The second major challenge of instant payments is the growing regulatory demand for fraud protection, dispute management, and remediation (such as SD20). Account-to-account (A2A) regulations in this area are expected to gradually align with the equivalent requirements imposed on card payments. Once again, banks will face the challenge of integrating new capabilities into their existing instant payment rails and overall technology stack.
Finally, as instant payments grow beyond peer-to-peer transactions, banks must reassess their offerings for customers and internal operations. The pressure to shift payments to instant rails will rise, but users will still expect the same features as legacy systems. Corporate clients will want to maintain familiar formats like files and payment advice and may seek deeper system integration for invoicing and other processes. Internally, banks will increasingly depend on these new rails for activities such as settlements and sweeps, requiring seamless integration with their existing workflows.
Looking beyond immediate compliance
The upcoming changes make it clear that banks must balance the urgency of immediate compliance with a more strategic, long-term approach that anticipates and supports future regulations and services. Banks should focus on implementing modern, future-oriented solutions rather than adopting a piecemeal approach that could lead to repeated, complex projects with suboptimal outcomes.
Vault Payments, Thought Machine's payment processing platform, is designed to meet both immediate and long-term challenges through three key technological advantages:
Real time: Vault Payments is designed and built to process payments in real time, while meeting the most demanding requirements for throughput and processing time.
Native ISO 20022 support: Vault Payments fully supports the entire message portfolio of ISO 20022, including all versions of each message. This ensures compliance with current regulatory messaging requirements and supports future message formats as they are introduced.
Embedded configurable payment orchestration: Vault Payments separates business logic—such as scheme rules, regulatory requirements, and customer preferences—into specific payment journey instruction flows. These flows can be quickly modified and deployed into the system, executed in real time by our homegrown payment execution engine. This enables us to implement flows for schemes like Faster Payments, RT1, TIPS, FedNow, RTP, or any other instant payment system. Clients can use these certified flows as they are or modify them with our support or independently to suit their specific needs. They can create multiple flow variants for different use cases while maintaining manageability and simplicity.
Robust integration framework: Vault Payments is designed with integration in mind. Instruction flows allow banks to integrate external services at any point during a payment’s lifecycle, controlling what information is shared and how to handle the returned data. This is particularly useful for real-time screening, where banks can customise when the screening takes place for each use case and how to process it.
As new services and capabilities emerge, banks can adopt new message formats and instruction flows to support these use cases, integrating them with existing systems at their own pace.
Final thoughts
In an environment where regulatory demands and payment technologies are rapidly evolving, banks need a flexible and forward-thinking solution. Vault Payments provides the tools to meet today’s requirements and easily adapt to future changes. With its robust support for ISO 20022, customisable payment orchestration, and seamless integration capabilities, Vault Payments positions banks to stay ahead without the complexity and inefficiency of frequent system overhauls.
We encourage you to explore how Vault Payments can simplify your compliance needs and enhance your payment processes, allowing you to confidently manage present and future challenges.
