The 3 main challenges of Instant Payments adoption for Financial Institutions

The landscape of financial transactions is rapidly evolving with the ISO20022 adoption and with the rise of instant payments, providing customers with real-time, 24/7 payment processing capabilities. The growth of Instant payments has been impressive, at almost 29% last year while it’s predicted that one in three of all consumer transactions globally will be instant by 2029 (“Why banks must prepare for an Instant Future”, RS2 2024). Of course, the milestone vote by the European Parliament underscores the significance of real-time transactions in today’s European digital economy.
However, this progress comes with significant challenges for financial institutions in terms of security, infrastructure, and Anti-Money Laundering (AML) checks. These challenges not only increase operational complexities but also raise concerns about compliance and service integrity.

Infrastructure Requirements
Adopting SEPA instant payments requires substantial upgrades to existing financial infrastructures. A report highlights that 58% of banks not currently offering instant payments services believe the deadlines for implementing such technologies are too unrealistic, indicating the scale of the challenge​​. These institutions must integrate high-speed and high-availability systems capable of processing large volumes of transactions instantly. Moreover, compatibility with existing legacy systems must be ensured to enable seamless operations without disrupting service availability.

Security Concerns
Security remains a top priority for financial institutions as they expand their digital offerings. Instant payments, by their immediate nature, reduce the window for traditional security checks, increasing the risk of fraud and cyber-attacks. Financial institutions must therefore implement robust, real-time security measures to detect and mitigate these risks promptly. This includes employing advanced fraud detection algorithms, secure authentication protocols, and continuous monitoring systems to safeguard transaction integrity and customer data. According to PYMNTS Intelligence, while the share of highly satisfied instant payments receivers for disbursements (one of the main applications of real-time transactions) in the US was up to 77% compared to last year, security is a major concern for them. Almost 30% of them would like to pass through a two-factor authentication or a passkey process.

AML Compliance
AML checks pose another significant hurdle. A SEPA instant credit transfer is supposed to be executed regardless of the day or hour and the money must arrive into the recipient's account within ten seconds.The need for real-time transaction processing conflicts with the thorough vetting required to prevent money laundering. Financial institutions must integrate sophisticated AML systems that can perform rapid checks without slowing down the payment process. These systems should be capable of analyzing vast amounts of transaction data in real-time to detect suspicious activities efficiently.

Strategic Approaches and Technology Solutions
To overcome these challenges, financial institutions are increasingly turning to innovative products and strategic partnerships with technology providers. Solutions like the aplonHUB platform offer tools that assist with integration challenges and real-time security protocols. These platforms provide APIs and other technical solutions that facilitate the seamless and secure integration of instant payment systems with existing banking infrastructure​​​​. Additionally, the adoption of standards such as ISO20022 by payment systems enhances the security and efficiency of transactions. These standards provide a framework for creating financial messages that improve the quality of data across networks, aiding in the execution of AML checks and reducing transaction risks.

As financial institutions navigate the complexities of implementing instant payments, they must address a number of challenges including security concerns, infrastructure updates, and AML compliance comprehensively. By leveraging advanced technologies and adapting to robust operational frameworks, banks can not only meet these challenges but also capitalize on the opportunities presented by instant payment systems, ultimately enhancing customer satisfaction and operational resilience.
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