The Coexistence of Batch and Real-Time Payments in an Evolving Landscape

In the rapidly changing world of payments, the rise of real-time transactions does not spell the end for batch payments. According to Mark Staunton, head of customer success in North America at Form3, there is ample room for the coexistence of both payment methods, even with the imminent launch of FedNow in the United States.

The United Kingdom serves as a notable example, where real-time payments have been integrated into the payments landscape since 2008. Interestingly, batch schemes still maintain a slight advantage over faster payments, accounting for approximately 60% of payment transactions, compared to 40% for real-time payments.

Staunton anticipates the growth of real-time payments across various use cases, driven by the emergence of the gig economy. Instant payment capabilities are highly valued by individuals engaged in gig work, as they seek immediate compensation upon completing shifts or projects. Staunton explains that the adoption of immediate payments enables businesses to accommodate such use cases without disrupting existing bulk processes.

The coexistence of batch and real-time payments is expected to persist in the long term. Staunton emphasizes that while consumers are accustomed to instant peer-to-peer transactions, corporates need to catch up to fully embrace real-time payments. Failure to do so may result in the loss of customers to more agile competitors.

Staunton acknowledges the perceived challenges involved in transitioning from batch cycles, which typically take two to three days, to an always-on, 24/7/365 functionality. He notes that the traditional payment rails, designed for single, high-value transactions or batched, low-value transactions, have evolved gradually over several decades.

Staunton explains that the primary limitation lies in the requirement to exchange files and process bulk batches due to technological and infrastructural constraints. Handling exceptions or unique circumstances within individual transactions becomes complicated when dealing with large batches comprising scores, or even thousands, of other payments. Reconciliation and back-end activities become burdensome when attempting to isolate specific transactions from the bulk process.

Moreover, batch payments have additional inefficiencies, as companies must adhere to daily submission deadlines or wait for the next settlement cycle. Compliance concerns also play a significant role, as each payment scheme has specific rules and requirements regarding the use of funds, extending from the company’s books and records to its retail and corporate customers.

To adapt to real-time payments and address these challenges, banks and corporates can leverage managed payment services connected through application programming interfaces (APIs). Staunton highlights that APIs offer a level of future-proofing by facilitating regulatory compliance and process changes while accommodating evolving demands and use cases.

APIs provide the flexibility to establish file connections quickly and streamline the launch of new products and services, leading to improved returns on investment. They also enable integration with multiple banking systems, allowing for enhanced data utilization across various departments, such as ledgers, investigation systems, and customer service systems.

The adoption of real-time payments does not signify the demise of batch payments. The coexistence of both methods is expected to endure, with real-time payments catering to consumer expectations and batch payments remaining relevant for corporates. By leveraging APIs and embracing the advantages of real-time payments, businesses can navigate the evolving payments landscape efficiently, enhancing their operational capabilities and customer experiences.