Buy, Build or Partner for Instant Payments

By Abhishek Veeraghanta, Founder & CEO of Pidgin

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Although instant payments appeared on the US banking scene in 2017 with The Clearing House’s Real-Time Payment (RTP®) Network, the adoption of faster payments hasn’t been instantaneous.In the summer of 2023, the Federal Reserve launched its own instant payments network, FedNow Service.

There are now more than 750 participating institutions and 31 certified service providers. We’ve written extensively about real-time or instant payments, including their benefits and risks. The technology is here to stay. The most important question financial institutions should ask is, “How will we implement this technology to add value for our account holders?”The answer to that question typically falls into one of three approaches: build, buy, or partner.
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The Merits of Doing-It-Yourself (DIY)
Transparently, we’re fans of this approach for one simple reason: the opportunity for innovation is unlimited if you bring the right skills and strategy to the work. The Federal Reserve built FedNow to create an instant payment standard that America’s banks can use to develop bespoke products and services. People call it a “payment rail,” which is fitting. The infrastructure operates just like railroads or municipal water and sewers. The type of vehicle (or house) you design is up to you, but the standards aren’t going to change. Looking at ISO 20022 and the growing number of organizations participating in real-time payments, you can see powerful network effects emerging.On the flip side, DIY technology solutions tend to fall apart for financial institutions because it’s difficult to dedicate enough talent and resources to the effort when you have a fully functioning business to run in the interim. The biggest risk of building a solution is that it might not meet your needs and leaving your institution with no recourse to fix it except sinking more resources into software development and maintenance.

The Merits of Buying Off the Shelf
You might find suitable instant payment solutions from your core provider or another fintech offering off-the-shelf functionality. That approach will work for many institutions because they want to be part of FedNow but lack the capacity or vision to move beyond the basics. Selecting an existing solution can help your institution reduce the time-to-market and manage costs. It can also simplify the compliance burden while helping you scale to your strategic goals.Even if you don’t think you’re in the market for off-the-shelf tech, it’s wise to assess the options and use them as a baseline. Companies are building both on existing infrastructure (legacy core systems) and new infrastructure (new payments rails), which involves a lot of experimentation and pivoting.The rails and technology solutions around them are constantly evolving as industry players discover what excellence looks like and what customers value the most.

The Merits of Partnership
The third approach is to find a partner who understands the infrastructure and has experience building out solutions – measured relative to the age of instant payment networks like RTP® and FedNow.Although these two networks differ in requirements, settlement, and liquidity management, they have similar functions. RTP has also been around longer, allowing fintech providers to gather more working knowledge of the underlying technology and client experience.
An instant payment partner can offer you the best of the DIY and off-the-shelf pathways:
- Lower capital outlay
- Minimal changes to headcount or existing responsibilities
- Outsourced development and maintenance
- Customizable interface and functionality
- Simplified compliance and fraud processes

Lastly, a partnership can allow you to assess the company’s value delivery and see how it fits your institution’s objectives.
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Building for the Best, Preparing for Reality
Our industry is witnessing a surge in regulatory scrutiny and enforcement action regarding BaaS partnerships. The effects are adjusting expectations for third – party relationships and a rethinking of the partnership process. Thankfully, partnering to offer instant payments doesn’t fall under the BaaS umbrella. Whatever path you choose for implementing instant payments, you should study the mistakes and successes of others to improve the rigor of your due diligence process.

 Instant payments have the potential to unlock trillions of dollars in transactions for financial institutions, driving deposits and other financial activity. Resilience and a growth mindset will pave the way to a bright future, especially for institutions willing to invest in their payments strategy.