Helping FIs Over Real-Time Payments Tech Infrastructure Hurdles

The financial landscape is changing, moving toward instant payments, toward commerce that is always on – and for financial institutions (FIs) serving corporations and consumers across the world, the margin for error is fast disappearing.

In an interview with PYMNTS in advance of an industry webinar scheduled for March 31, SmartStream’s Vincent Kilcoyne, executive vice president of product management, and Roland Brandli, senior vice president of payment programs, said the movement toward digitization means that FIs must re-examine processes and overhaul infrastructure.

As Kilcoyne explained, commerce has evolved in a number of ways across the past 10 years – and history is a good indicator of how commerce and financial services will evolve.

A decade ago, he said, a customer would place an online order, and the purchased goods would arrive at their doorstep in two or three days, before the funds had cleared their bank accounts.

“There was a massive delay in the ways in which money would move around institutions,” said Kilcoyne. “Nowadays, we can order something from Amazon on a Monday morning and potentially have that same product the same day.”

The funds? Well, they can leave one bank account and settle in another account in a matter of seconds.

That signals a seismic shift for companies across the globe and across industries, and for the FIs that process payments across borders, time zones and currencies. For their end users on either side of the transaction, speed matters, and online commerce may comprise the bulk of a firm’s top line.

Said Kilcoyne, firms “that do not look at their business in those terms will be made aware of the frailties of their choices.”

The transition to a digital, online commerce business model, he said, can help usher in a new economic system in the age of unanticipated events (such as, of course, the coronavirus).

But infrastructure is the key to satisfying customer needs – and, as Kilcoyne noted, SmartStream’s roster of clients, among them banks and financial services providers, find it challenging to efficiently track and monitor payments and reduce errors.

Traditionally, he said, deploying new payment or banking applications has been a monolithic effort. To counter that heavy technical lift, Kilcoyne and Brandli pointed to the advantages of a micro-service, cloud-native architecture. That architecture, powered by artificial intelligence (AI) and both supervised and unsupervised machine learning, can introduce a level of upgrade that can drill down into individual services.

“It is API-based, so we’re able to pass information and fine-tune the performance of individual services to ensure optimal outcome,” said Kilcoyne, avoiding any ripple effect that may interfere with smooth operational flows.

With a nod toward new payments methodologies, such as contactless payments, said Brandli, by having a microservice-oriented architecture and software that’s quick to adapt, FIs can roll out new products more cheaply and with greater speed, as initiatives like SWIFT gpi and SEPA Instant Credit Transfers gain traction.

Moving Toward Automation

As Brandli noted, financial services firms and banks must automate large swaths of their payments control processes.

“We are seeing a fundamental change in the landscape, and in the underlying infrastructure, through things like ISO 20022 [the financial industry messaging scheme], and there’s also the challenge of instant payments,” Brandli told PYMNTS. He explained that the typical FI/SmartStream customer may have always processed payments on an end-of-day basis, and now has gradually moved those activities toward an intraday basis.

But as more systems are brought into place that use instant payments, grappling with failed transactions can be a time-consuming and costly endeavor, especially when those payments are done cross-border and, in the future, will settle in seconds. Where once payments settled in three days, which gave FIs a window in which to “repair” transactions, that window has now closed.

Brandli recounted to PYMNTS his conversation with a bank that had a volume of a million payments a day, 100,000 of which would fail. Add the complexities of maintaining compliance with KYC (know your customer) and AML (anti-money laundering) mandates, and managing payments becomes a heavy – and inefficient – lift as FIs serve their consumer and corporate customers.

Kilcoyne noted that investing in AI (through, for example, SmartStream’s TLM Aurora Advanced Payment Control) resolves cross-border payment issues in an automated fashion – where years of (human) experience would typically have been required – and sends updates to the SWIFT gpi tracker.

“Now, with AI and machine learning … you can teach [the technology] to actually handle these things,” said Brandli, “unsticking transactions,” speeding up payments inquiries and streamlining and optimizing payment flows in an automated way.

“That’s a huge amount of work, which cannot be processed by people,” he added.

Cutting down on expenses (tied to manual review and workflows) with the aid of advanced technologies, said Brandli and Kilcoyne, means what had once been an expense center can be transformed into a revenue stream.

“The revenue model of banks is changing,” said Brandli, “and will move more toward having third-party service providers offering services, and the banks underpinning that with the actual processes.”