A new study by Lipis Advisors, experts in real-time payments, has found that the cost of migrating to Instant Payments infrastructure for small and medium sized banks is far lower and more controllable than previously thought. This revelation suggests that smaller banks are actually better positioned to respond to regulatory and consumer pressures for Instant Payments, and that real time banking doesn’t need to be the preserve of large, well-funded banks.

The research provides the first insights into the real world experiences, costs and challenges of global banks and processors when implementing Instant Payment solutions and shatters some of the myths surrounding Instant Payment implementations across the globe. With banks struggling to make a business case for the transition to Instant Payments according to the research, the study provides a case for change.

The research, “Implementing Instant Payments: Insights from Early Adopters”, reveals that choice of vendor is critical, with smaller banks relying far more upon their solutions provider for their specific expertise and guidance. Larger more established providers typically charged smaller banks around 20% per annum of implementation costs in annual maintenance fees.

Surprisingly, testing and integration costs were reported to make up 60% of the initial cost of implementation. Hardware, software licencing costs and transaction volumes were not sizeable contributors to cumulative costs over a five-year period. This suggests smaller banks may be missing out on the commercial opportunities that Instant Payments provide because of fears around these costs. Instead maintenance fees, comprising of software updates, ongoing license fees and regular enhancements, were found to be the biggest expense over the period.

Even when this is taken into account, the five-year cumulative cost for the largest projects were reported to be less than €5m on average. By using modular solutions, where individual elements are combined with a core system in a targeted approach to focus specifically on Instant Payments, the cumulative cost over five years could drop as low as €500,000.

“Through discussion with executives we found that using a targeted approach to implement Instant Payments capabilities is the most efficient strategy. This enables banks to optimise existing IT resources, protect legacy investment, lower cost and cope with fast changing internal and external requirements. Investment in testing for example, currently a remarkable 25% of the initial cost, provides a real opportunity for savings,” said Dr. Leo Lipis, founder of Lipis Advisors. “Instant Payments has been seen as the domain of large multinational banks with the resources to implement complicated, cumbersome systems. This research clearly shows that this isn’t the reality. By using a solution from an experienced vendor with genuine payments expertise, small and medium sized banks can rapidly take advantage of the benefits that Instant Payments offers.”