Mihail Duta is the director of global solutions consulting and payments at London-based Finastra, a global provider of financial software applications and payments. He is based in New York.
The Federal Reserve Board recently announced that its Fedwire Funds Service will expand its operating days to include Sundays and weekday holidays.
Now, it’s time for banks to take an important step toward modernization by embracing around the clock payments, and faster availability of funds that can boost customer satisfaction, improve liquidity management for business customers, and cater to younger, digital native customers accustomed to services like Venmo and Zelle.
While it’s true that pressuring financial institutions to operate 24/7 could have unintended consequences, like increasing operational strain and widening competitive gaps, relying on legacy payment systems isn’t the answer.
In addition to operating during times when banks are not open for business, upgrades will allow instant payments that require more flexibility than legacy platforms are designed to provide, such as elastic scalability and rapid end-to-end processing.
Such modernization also enables use of the new ISO 20022 standard, with its more complex and data-rich messaging format than is used by most legacy payment systems.
Banks need to support newer instant payment networks alongside legacy networks, which still handle large numbers of transactions. On top of the challenges presented by instant payments, financial institutions that still depend on legacy systems may also face difficulty implementing new service enhancements for other types of payments, including ACH.
Managing a complex system of fragmented payment services can put a strain on financial institutions’ capacity to operate efficiently and compete effectively.
To be sure, updating legacy payment systems can be complicated and expensive, especially for financial institutions that maintain their own proprietary payment tech stacks.
Financial institutions may be reluctant to move forward with needed changes out of concern about long implementation processes and delayed return on investment. And in an environment where compliance and fraud risks continue to rise, financial institutions have a variety of competing priorities to address.
Despite these challenges, many banks should invest in modernization. More than half of those surveyed in a 2024 report from global research firm Omdia indicated plans to boost investment in new payment hubs. These solutions provide financial institutions with the opportunity to establish a platform built on modern architecture and deployed in a cloud-based environment, serving as a foundation for modernizing the payment stack across the enterprise.
This is especially true as more systems, including both domestic and cross-border options, adopt ISO 20022 messaging frameworks. In addition to supporting instant payment services, a modern payments platform offers benefits, including enhanced remittance information; improved fraud detection; faster and more efficient cross-border payment processing; automated reconciliation; operational efficiency and enhanced compliance.
The shift toward a 24/7 payments ecosystem is inevitable and already underway. Organizations that are prepared to support instant payments will have a distinct competitive advantage over those that have yet to modernize legacy payment systems.
