Juggling batch payments processing in real time

Innovation and new payment methods are quickly leading banks, merchants and payment processors into an era of real-time payments. Unlike in the past, where processing took days, the economy is moving to an environment in which payment authorizations, fund transfers and settlement happen instantly.

Batch processing methods have been used for card-based transactions for decades. However, as the adoption of real-time payment methods continues to grow, financial services companies must support both batch and real-time payments processing.  As a result, there is a growing need for back-office payment processing systems that can handle both simultaneously.

Batch payment processing gathers authorized transactions over a specific period, usually within a few hours or at the end of the day, and then consolidates and processes them simultaneously. However, the growth of real-time payments is increasing the demand for faster processing.

Most companies have evolved their front-end authorization systems to support both card-based and account-to-account real-time payments. But back-office systems that perform the critical functions after a transaction is authorized are lagging because they are batch-oriented and not designed for continuous processing.

A recent report by Jupiter Research noted the number of instant transactions will grow globally by 289% over the next four years. As a result, banks, retailers and payment processors are adopting new systems and technologies to support the rapid growth in real-time payments.

Research is also showing that even as real-time payments continue to grow, batch payments will remain important. For example, the United Kingdom was an early adopter of instant payments, as its Faster Payments scheme went live in 2008.  According to data posted on Statista, approximately 10.8% of the overall payments mix in the country – including both cash and cashless – is anticipated to be an instant payment by 2028.

This means that even as the adoption of real-time payments continues to grow, batch payments will continue to be widely used.

Supporting batch and real-time demand with a unified system

Since many companies’ current back-office payment processing environments cannot support real-time processing, they are facing the challenges of supporting a larger number of disparate back-office systems. Juggling multiple systems for batch and real-time payments is complex, inefficient and costly.

The good news is there are solutions that simultaneously support both batch and real-time processing. There are a few key features that companies should consider for a unified platform that performs critical back-office functions such as transaction research, reconciliation, settlement processing, fee processing and disputes management:

• Includes a centralized repository:
  The system should be able to automatically and continuously load both batch and real-time payments data into a single repository and begin processing as soon as the data arrives. This enables companies to complete back-office payment processing quickly and efficiently. It also provides a real-time enterprise view of all payments data.

• Supports ISO 8583 and ISO 20022 message formats:
  A unified system should support both ISO 8583 and ISO 20022 message formats. ISO 8583 has been a cornerstone of card-based payments for decades, providing reliability and fast processing of high transaction volumes. However, real-time and cross-border payments use ISO 20022, which is an entirely different format. Supporting both messaging formats in one platform improves operational efficiency, enhances the customer experience, ensures compliance, and helps future-proof for new payment methods.
• Provides flexibility via a configurable rules engine:
  A configurable rules-based solution offers an architecture for agility and can help banks and payment processors overcome many of the challenges with legacy back office systems. Rules-based systems allow for more accessible updates and modifications, enabling the companies to alter and implement new rules as needs change. A rules-based system also increases efficiency and cost savings by automating manual processes and streamlining workflows.

The path forward

Although real-time payment volumes are growing, batch payments are not going away.  This means payment processing environments are becoming more complex.

To reduce risk, liability and unnecessary costs, banks and payment processors are recognizing the importance of consolidating multiple disparate back office systems.

Companies are also finding that in addition to supporting both batch and real-time payments processing, a unified solution provides an enterprise view of all payments data and performs back-office processing more quickly, reliably and cost effectively.

Michael Meeks is Chief Technology Officer for BHMI.