Don’t get left behind: The urgency of instant payments

A Business Case for Financial Institutions

Instant payments are becoming the norm in the financial sector, a dominating topic among Federal Reserve Financial Services and private sector thought leaders at recent Money 20/20 USA Conferences.

The overwhelming consensus is that instant payments offer speed, transparency and operational efficiency. They boost cash flow, simplify reconciliation and invoicing, optimize working capital, and enable just-in-time business models, all while improving the user experience.

However, a substantial imbalance remains: While many U.S. financial institutions (FIs) are projected to be able to receive instant payments by 2028, a much smaller proportion will be equipped to send them. This discrepancy creates a barrier to full adoption, limiting the ability of FIs to provide 24×7 data-rich, real-time financial services. Additionally, this sending-receiving gap is not unique to the U.S., the disparity between instant payments capabilities is global.

This sending-receiving disconnect is more than a technological issue—it’s a competitive and strategic challenge. Customers and businesses expect real-time payment and receipt capabilities, particularly liquidity management and cost-efficient processing. FIs that cannot offer these services risk losing market share to more agile competitors, including fintechs and larger banks that fully embrace payments modernization and digital transformation.

Understanding the barriers
Several factors drive the disconnect in instant payments adoption: regulatory and compliance challenges, technological constraints from legacy infrastructure, 24×7 enablement, and resource limitations, especially for smaller and mid-sized institutions. These factors create a complex hurdle for many FIs. Without full instant payments functionality, they face operational inefficiencies, higher transaction costs, and weaker customer retention.

Meanwhile, companies are exploring alternative financial services providers that offer faster, more flexible payment options.

The case for payments modernization
To close the sending-receiving gap, FIs must prioritize payments modernization. A modernization strategy delivers tangible benefits, including:

• Further Extensibility: Payments modernization encourages future growth by making the release of new services and products faster and easier.
• Improved Customer Experience: Businesses and consumers expect real-time payment options, and failing to meet these expectations could result in customer attrition.
• Enhanced Liquidity Management: Instant payments optimize cash flow by providing real-time access to funds, improving working capital efficiency.
• Increased Efficiency: Transitioning to modern payment hubs eliminates inefficiencies associated with traditional batch processing and manual reconciliation.
• Regulatory Readiness: ISO 20022 adoption enhances data richness, streamlining compliance efforts and enabling advanced fraud detection and reporting analytics.

According to Omdia’s Payment Hubs 2024–25 report, FIs are predicted to spend $2.4 billion globally on payment hubs in one year, marking an 8.5% increase from the previous year. Additionally, IT spending on payment hubs is expected to grow at a CAGR of 9.7%, reaching $3.4 billion by 2028. Institutions investing in modern payment infrastructure now will be better positioned to compete in the evolving financial arena.

Omdia emphasizes the importance of payment hubs for all tiers of banks, driven by factors like ISO 20022, open banking and the rising demand for instant payments. They also highlight the shift toward modular, microservices-led, real-time, API-first, and cloud-native architectures for payment hubs.

Key steps for FIs
To successfully modernize payment capabilities and bridge the instant payments divide, FIs should focus on:

• Assessing Infrastructure Readiness: Institutions must evaluate their current technology stack and identify gaps that hinder real-time payment adoption.
• Prioritizing Cloud-Native Payment Hubs: Low-code, cloud-native, API-first solutions provide scalability, flexibility, and cost efficiency, making them ideal for FIs of all sizes.
• Leveraging Partnerships: Collaborating with payment technology providers accelerates adoption by offering access to expertise, advanced security measures, and compliance frameworks.
• Developing a Phased Implementation Plan: Instead of attempting a full-scale transformation at once, FIs can implement instant payments capabilities in stages, beginning with high-impact use cases such as payroll and disbursements.
• Educating Stakeholders: Many decision-makers within FIs are unaware of the full benefits of instant payments. Ongoing education and awareness initiatives can drive organizational buy-in and ensure successful implementation.

The future of payments: A predictions analysis
The payments industry is on the cusp of “Payments Modernization 3.0,” characterized by increasing reliance on automation, AI-driven risk management, and real-time financial data analytics. One key trend shaping the future is the adoption of AI and machine learning. AI-powered fraud detection is a staple in securing instant payments transactions while minimizing false positives.

Adopting ISO 20022 standards is also paving the path ahead by enhancing functionality and facilitating new opportunities for FIs to differentiate themselves. Unlike legacy systems, the new standard attaches detailed data to transactions, allowing banks to provide advanced analytics and feed AI models to better manage fraud, payment routing, and many other aspects of the payments customer experience. With this shift, payment systems turn from simple transactional tools into strategic assets for growth.

The expansion of embedded finance will see instant payments integrated into digital commerce, enabling seamless transactions within online platforms and mobile applications. Regulatory developments will drive broader adoption of real-time payments, primarily for cross-border transactions, as governments and financial regulators introduce new mandates. As central bank digital currencies (CBDCs) gain traction, real-time payments infrastructure must adapt to support these new digital assets.

Modern payment hubs are a necessity for FIs. The ability to integrate multiple payment rails, automate compliance processes, and support emerging innovations like CBDCs and open banking will define the next generation of instant payments ecosystems.

The urgency to act
For FIs, the time to modernize is now. The payment hub market is forecast to expand at a robust pace, achieving a compound annual growth rate (CAGR) of 11.2% between 2023 and 2028, according to Omdia.

Institutions that want a piece of this pie must invest in modern, cloud-native payment hubs to gain a competitive advantage, offering customers seamless, secure, and cost-effective real-time payments. The alternative—falling behind—is a risk no FI can afford in the constantly shifting payments terrain.

Deepak Gupta is Global EVP at Volante and a board member at the U.S. Faster Payments Council.