Financial services institutions understand that today’s banking customers expect fast, easy-to-use services they can tap into anytime, anywhere, and are therefore accelerating adoption of digital technologies to enable a variety of new offerings. That often includes real-time payments that let businesses, consumers, and even governments send and accept funds that provide both availability to the recipient and instant confirmation to the sender.
In many ways, the rapid adoption of mobile commerce and mobile banking has whet the appetite for real-time payments among consumers. PwC makes this case in its report, "Financial Services Technology 2020 and Beyond: Embracing disruption," which discusses the evolution of the digital wallet. The report points to the benefits of digital wallets that give consumers "a fast, secure, low-cost method to use, store and send money over the Internet," and notes that banks are pursuing greater control over mobile banking channels so they can "manage the security, user experience, and customer connectivity at the point of purchase."
Enabling real-time - or at least faster - payments that improve the speed of online payment experiences to customers has the potential to give banks a greater opportunity to win, serve, and retain their customers. By building solutions that capture real-time payment business, banks also can drive higher payment volumes, ideally at lower costs as well as engage new customer segments.
Real-time payments beyond business
Government entities around the world working to expedite payments are working to establish policies and modernize payment processing networks. This is complex work that doesn’t just involve payments between two parties. More broadly, it requires collaboration and integration among entire financial value chains consisting of banks, check- and card-processing systems, merchant point-of-sale (POS) systems, e-commerce systems, clearinghouses, and more, many of which operate across borders and globally.
It also requires harmonization among various data types and transfers that span technical evolutions, from legacy schemas and batch processing to the use of modern application programming interfaces (APIs) and fully digital real-time systems.
The promise of, and interest in, real-time payments has captured the attention of the U.S. government, which set a 2020 target date for faster payments to be available to every U.S. consumer and business. In response, the Federal Reserve created the Faster Payments Task Force in 2015 to begin defining the criteria for a successful faster payments system. The task force concluded in 2017 by issuing a call to action report, spurring industry leaders to launch the Faster Payments Council to support implementation.
In addition, The Clearing House (TCH) has launched its real-time payments (RTP) service, which has allowed participating banks to transfer funds between bank accounts more quickly. TCH is working with providers of core processing and payment services, banks, and corporate credit unions to provide easy access to the RTP network for every financial institution in the United States by 2020. To fully integrate with the new RTP network, banks will have to build new platforms that can initiate new credit payments and receive payments to apply to their customers. The platforms will also need to integrate with that banks’ other systems, such as settlement and posting systems.
It’s not just the United States. Other countries are actively establishing new systems that streamline and speed up payments. China’s central bank, for example, has called for a nationwide clearing house for online payment services. The European Union is working with non-profits like the European Payments Council, which is made up of more than 70 members (mostly banks), to harmonize and accelerate payments for citizens and businesses. In the United Kingdom, Faster Payments has enabled quick and secure electronic payments for account holders. And in Singapore, FAST (Fast And Secure Transfers), a non-profit banking organization, offers inter-bank electronic transfers for users.
Bridging legacy apps to the future
For traditional banks, which must now compete with the fintech disruptors and even tech companies like Apple, enacting real-time payment systems will require more than the adoption of digital technologies like mobile banking. In our view, it needs agile processes that connect those technologies to banks’ legacy applications. It also needs an architectural framework – built on open source – that drives new efficiencies in payment operations and which can align containerized microservices, hybrid cloud, and APIs with the agile and DevOps practices designed to accelerate the development of new products and services to customers.
Open source not only can deliver substantial cost savings over proprietary products, but also provides a technology foundation that’s provider-agnostic, allowing any real-time payments solution to take advantage of external resources such as public cloud providers.
Microservices – which can be rapidly developed and integrated – can be seamlessly layered into a bank’s existing architecture and quickly start providing value to internal and external users. A modern messaging platform with high throughput and low latency could facilitate better data sharing. And with a loosely-coupled architecture built with APIs for a hybrid cloud platform, fault tolerance is increased which means updating or removing services carries less risk of breaking the entire app.
Red Hat’s take on real-time payments
Red Hat understands the complexities the financial industry is facing as it reinvents and modernizes the payment systems it's used for decades. To that end, Red Hat is focusing its financial services industry solutions on the capabilities and technologies that drive integration and automation so institutions have the tools they need to accelerate payment processing -- and perhaps more importantly -- expand services that appeal to 21st century customers.
Red Hat has built a demo that uses the credit transfer message specification, as defined by TCH in its RTP system. The demo architecture is modular with components that are smaller, interconnected services, making it easy to test and scale. Each service will implement distinct functionality and would ideally be deployed as a container and managed using a container management platform. These services would expose rest APIs or would consume and publish messages.
Some of the benefits of the Red Hat demo architecture include:
The application can easily be extended over time
Individual components can be scaled as needed
Making code changes and adding new features can be done quickly
Individual components can be easily tested and migrated
Event-driven design avoids synchronous processing bottlenecks so messages can flow through the system as quickly as possible
Just as agility is key to business success, Red Hat believes it will be key to a successful real-time payments solution. With the Red Hat agile integration framework, microservices can be more rapidly developed and more rapidly integrated. And with Red Hat Fuse, which includes built-in integrations, and Red Hat 3scale API Management for managing APIs, microservices can be seamlessly added into an existing architecture to start delivering value to internal and external users out of the gate. To share data within your infrastructure, the streams component within Red Hat AMQ facilitates messaging with high throughput and low latency.
To learn more about real-time payments and Red Hat’s demo architecture, read our white paper on how to speed digital payments.