Instant Payments Processing: Do you need a stand-in module?

The power of instant payments is in its ability to meet the demands of a rapidly evolving financial landscape. Instant payments are fast, convenient, efficient, align with the expectations of both businesses and consumers, and promote financial inclusion. 

But instant payment processing piles a lot of pressure on banks.

Getting the internal infrastructure ready, for example, is a challenge. Implementing instant payment systems requires robust and scalable technology infrastructure, yet many existing payment systems need upgrades to handle the increased volume and speed of transactions.

There are scalability issues, too. Instant payment systems must be able to scale rapidly to accommodate increasing transaction volumes, especially during peak times. Expanding the system to meet the demands of a growing user base, however, is difficult.

As a bank, you need to cover downtime and system outages. Instant payment systems require high availability to stay in action, so you need redundancy and failover mechanisms to keep things ticking.

You also need to record and synchronize your data accurately, in real-time, across various parts of the payment system for it to be reliable.

You must think about the cost of the implementation. Not just the investment in technology upgrades but security measures and staff training, too. Then there’s the speed of instant transactions, which may limit the ability to reverse payments in the case of errors or fraud. And your instant payments offering must be interoperable.

The most critical challenge you’ll face is applying this to every system in the payment value chain. Your core banking, fraud, limit, and liability systems must be instant, highly scalable, and available 24/7. The problem is most existing core banking systems rely on mainframe-based architecture, which means they are highly outdated, less available, and not fit for processing payments instantly.

The best course of action would be to update your core banking system. But that’s expensive, and if you’re a bank in the EU, it may not be possible within the legislative deadlines. Rushing will introduce risks you cannot afford to take.

If you want to keep processing payments and your legacy core banking system can’t do it (or can’t do it quickly), you must rethink how you achieve instant payments on top of the existing systems. The question is: How?

What is a stand-in module?

In instant payment processing, a stand-in module refers to a backup or temporary system that performs transaction processing (like balance/account check) when the core banking system is unavailable or offline. It is also known as a stand-in ledger or shadow balance module.

Stand-in modules are tactical solutions that protect downstream systems while providing the high availability and accuracy required by instant payment processing. They also serve as an integration layer, shielding the payment engine from the specifics of a bank’s core banking system.

Let’s say a customer initiates an instant payment. Normally, the transaction will go through the standard processing system – order manager, payment engine, core banking, other enterprise systems, and last-mile connectivity gateways. But what happens if the primary core banking system is unavailable? What if problems with the network prevent transactions from being processed? Or it’s outside business hours? Or there’s maintenance on the system?

This is where a stand-in module steps in. The stand-in module acts as a tactical and technical solution, shielding the bank’s core banking system to ensure transactions are still processed and the customer is unaffected. Many banks already use a similar setup for their debit card transactions to keep payments processed around the clock.

What are the benefits of a stand-in module?

There are numerous benefits to a stand-in module:

24/7 service from non-24/7 systems: Most core banking systems operate during business hours, but instant payments are 24/7 (as per EU legislation). Stand-in modules help banks meet these demands using existing and legacy platforms to ensure payments process around the clock.

Transaction continuity: One of the biggest benefits of a stand-in module is its ability to secure transaction continuity. In the event of disruptions or unavailability of the primary authorization system, the stand-in module allows transactions to be processed, which prevents delays and maintains a silky-smooth user experience.

Reduced downtime: If the core banking system drops, the stand-in module steps in. Downtime is minimized by activating the stand-in module during the primary system unavailability. Businesses and financial institutions must maintain operations, especially in scenarios where instant processing is essential.

Enhanced customer experience: Instant payments provide a fantastic customer experience. When they’re instant, but if there is a delay, the system is down, or there is some other technical issue that delays the transaction, instant payments are less attractive. The stand-in module tees up a winning customer experience every time by minimizing the impact of disruptions and ensuring that customers can still make transactions without unnecessary delays.

Business continuity: Heavily reliant on instant payment processing? The stand-in module helps prevent revenue loss and maintains service availability during temporary outages. It is a core component of business continuity planning for businesses.

Improved reliability: A stand-in module adds a layer of reliability to the payment system. It demonstrates a proactive approach to handling potential disruptions, instilling confidence in users and stakeholders.

Optimized cash flow: Timely payments are critical to every business. The stand-in module helps them flow even if the core banking system has not booked a payment yet.

Prevent transaction declines: A stand-in module builds trust with your customers by preventing unnecessary transaction declines during temporary outages.

Is a stand-in module right for your organization?

A stand-in module is one slice of a broader strategy that protects the resilience and continuity of payment systems. It can help to minimize service disruptions and ensure transactions are processed even when the primary core banking system is temporarily out of action. When the primary system is back online, transactions processed using a stand-in module must be reconciled and verified.

At the same time, a stand-in module can be used as an integration layer, keeping your payment processing solution as vanilla as possible.

But it’s important to note: that a stand-in module is neither a product nor a one-size-fits-all solution.

Core banking systems differ from bank to bank, as do the activities performed. Do you deal solely with balances? Or do you perform complicated multi-currency transfers? If you have enough GBP in the GBP component but not enough USD, will you let the EUR component cover it? The systems that feed into a shadow balance and the way they are synchronized are subjective.

A stand-in module is a complex, highly customized piece of work. It requires deep integration with your payments engine and core banking systems. There is some basic functionality that is consistent across banks. Beyond this, it takes an acute understanding of your environment, risk appetite, and IT systems to build a bespoke solution.

Speak to RedCompass Labs

At RedCompass Labs, we will work with you to understand your requirements. We can deliver a solution that meets your specific needs. We have micro-service-based toolkits and accelerators to create solutions quickly that enable you to work with existing platforms. We can help you avoid the customization of your payments engines – which reduces cost, risk, and project time – and retain control of your payments modernization program.

To understand whether a stand-in module is right for you, contact our experts today.