Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments PDF Free Download
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INTRODUCTION
India and Brazil lead in real-time payment
adoption. India's Unified Payments Interface (UPI)
processed 129.3 billion instant payments in 2023,
while Brazil's Pix saw a 78% increase YoY over the
same period, reaching 37.4 billion transactions.2
This success is due to strong merchant incentives,
open payment ecosystems, and the rising use of
mobile wallets and QR codes.
The financial landscape has transformed
significantly with the advent and rapid growth
of instant payments, offering unprecedented speed
and convenience for consumers and businesses. In
2023, real-time payment transactions surged to a
record 266.2 billion, marking a 42.2% year-over-year
(YoY) growth. By 2028, they are projected to reach
575.1 billion, reflecting a compound annual growth
rate (CAGR) of 16.7%. This growth will increase
the share of real-time payments in all electronic
transactions globally from 19.1% in 2023 to 27.1%.1
Driving Operational
Excellence to Meet
Customer Demands in an
Era of Instant Payments
A Research Brief from Kapronasia in Collaboration with SmartStream
1 ACI Worldwide, ‘It’s Prime Time For Real-Time 2024: Real-time payments adoption and growth around the globe,’ 2024, accessed May 2024
2 Ibid.
June 2024
1
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
2
3 Ibid.
4 Reuters, ‘EU adopts euro instant payments rules to take on Visa, Mastercard,’ Feb 2024, https://www.reuters.com/markets/europe/eu-adopts-euro-instant-payments-rules-take-visa-mastercard-2024-02-26/
3 Ibid.
4 Reuters, ‘EU adopts euro instant payments rules to take on Visa, Mastercard,’ Feb 2024, https://www.reuters.com/markets/europe/eu-adopts-euro-instant-payments-rules-take-visa-mastercard-2024-02-26/
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
3
However, the shift towards instant payments
has brought significant challenges for financial
institutions, particularly in managing payment
exceptions and investigations (E&I). Payment
exceptions occur when transactions fail to
process as intended, leading to delays and
additional costs. Investigations into these
exceptions are crucial for resolving issues,
ensuring compliance, and maintaining customer
trust. Effective management of E&I is vital for
operational efficiency and financial stability in
the banking sector.
Real-Time Payments Volume, Billions, 2023-2028f
Figure 1
5 Swift, ‘Swift IN FIGURES, December 2022 YTD,’ accessed May 2024
6 Swift, ‘Use case 2 - Improve payments exceptions and investigations,’ https://www.
swift.com/standards/iso-20022/supercharge-your-payments-business/chapter-6
Note: *2022-2027f
Source: ACI Worldwide
THE CURRENT LANDSCAPE OF
PAYMENT EXCEPTIONS
manual and time-consuming, with most cases
taking over five days to resolve, significantly
impacting customer experience. With an
average cost of approximately US$50 per case,
the financial burden on the industry accumulates
to billions of dollars annually. This not only
affects operational efficiency but also greatly
diminishes customer satisfaction.
Payment exceptions are a significant operational
concern for the global financial industry. In 2022,
the SWIFT network (SwiftNET FIN) processed
nearly 5 billion payment messages.5 With
an estimated 2-5% of these payments resulting
in exceptions, this translates to about 100 to
250 million payment investigation messages
annually (Figure 2).6
Managing these E&Is is highly labor-intensive
due to the extensive use of free-format messages.
As a result, exception management is largely
226.2
575.1
185.8
351.5
0.9 3.0 13.2 34.2
3.9 13.0 8.2 21.7 33.0
119.5
16.7%
13.6%
28.8% 21.0% 27.3% 21.5%
29.3%
CAGR
2023 2028f
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
4
Payment Messages Over SwiftNET FIN & Estimated Exceptions In 2022
Figure 2
Source: Swift and Kapronasia analysis
The Rise of Instant Payments
Source: Swift
Instant payments add a further layer of difficulty
for banks, presenting both opportunities and
obstacles. They generate an annual revenue of
US$200 billion. However, they also introduce
considerable complexity, with two million
transactions failing each day. Resolving each
failed transaction is estimated to cost US$50,
leading to substantial expenses. In Europe alone,
payment exceptions and investigations cost
banks US$21 billion annually.
$200
Billion
Revenue
for banks
2 Million
FAILED
Transactions
per day
$50
To fix each fail
Payment Messages Over SwiftNet FIN,
Billions, By Region, Dec 2022 YTD
Estimated Payment Exceptions Over SwiftNet
FIN, Millions, By Region, Dec 2022 YTD
Europe,
Middle East
& Africa
Americas
& UK
Asia
Pacific
To t a l Europe,
Middle East
& Africa
Americas
& UK
Asia
Pacific
To t a l
2.2 2.1
0.7
5.0
44.3
110.8
41.1
102.7
14.4
36.0
99.9
249.6
2% 5%
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
5
MANAGING PAYMENT EXCEPTIONS IN THE
INSTANT PAYMENT ERA
automate. While many of these systems have
adopted ISO 20022, a global standard intended
to harmonize payment messaging, they often
use proprietary variations. Although ISO 20022
standardizes the messaging format, it does not
regulate the syntax. The interpretation and use
of its rich data fields can, therefore, vary
significantly among systems, leading to
inconsistencies in information. In addition,
payment exceptions frequently arise from
incomplete or incorrect data, such as
mismatched account numbers or names.
Additionally, the lack of pre-validation in some
systems results in more frequent failures.
Due to their high speed and volume, managing
payment exceptions for instant payments poses
significant challenges for financial institutions.
These transactions elevate customer expectations
for immediacy and accuracy, and any delays or
errors can lead to substantial reputational damage
and financial loss. In a competitive market,
customers can easily switch providers if their
expectations are not met.
The fragmented nature of payment systems
and corridors introduces disparate data and
message formats, making exception management
highly complex, labor-intensive, and difficult to
When a payment exception does occur,
financial institutions tend to rely on free format
messages—unstructured communication
methods—to handle them. These manually
typed messages address issues such as incorrect
beneficiary details, account numbers, or other
discrepancies. While flexible, free format
messages significantly complicate the handling
of payment exceptions due to their unstructured
nature, which limits the potential for
automation. Currently, a low percentage of
exception handling is automated, primarily
because of banks reliance on the free-format
messages. Automating these processes could
save substantial time and resources, enhancing
operational efficiency and accuracy. In the
realm of instant payments, where transactions
are expected to be completed within seconds, the
manual handling of exceptions via free format
messages is increasingly problematic.
Moreover, this lack of automation in payment
exception management creates significant
bottlenecks and challenges in audit and
compliance by necessitating multiple manual
data entries and fragmented workflows.
This increases the risk of errors and makes it
difficult to maintain a cohesive record of
all interactions. Such a disjointed approach
complicates the creation of a comprehensive
audit trail.
While instant payments benefit from transaction
speed, their global adoption requires addressing
fragmented systems, inconsistent applications
of standards, and manual processes. In a
competitive market, high expectations for speed
and accuracy necessitate robust automation
and harmonized standards to ensure efficiency
and maintain customer trust.
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
6
AUTOMATION DRIVING OPERATIONAL
EXCELLENCE
these significantly slow down investigations
and are not compatible with automation.
Automation can mitigate these issues but
requires investment in both systems and a shift
to standardized structured formats and rule books.
In addition, advanced analytics and artificial
intelligence (AI) can significantly improve payment
data quality and detect unusual behaviors, thereby
enhancing exception management. However,
AI integration must be transparent to ensure
compliance and auditability. While generative AI
tools like ChatGPT hold promise for delivering
valuable analytics and management insights, the
initial focus should be on employing specific AI
systems trained on high-quality data, as poor data
can lead to incorrect conclusions. Furthermore,
even with high-quality data, inherent biases may
persist, posing a significant challenge that the
industry must address.
Overall, the future of handling payment exceptions
lies in the strategic implementation of automation,
AI, and advanced analytics, supported by
standardized rule books, messaging, and reliable
technology partners. This approach will reduce
exceptions, lower operational costs, and improve
overall payment processing efficiency.
In the era of instant payments, efficiently managing
payment exceptions and investigations requires
adopting the latest technology, advanced processes,
and best practices. Although the adoption of ISO
20022 aims to harmonize payment data, the
transition to this new standard requires financial
institutions to embrace a universally accepted
standard for message content.
Additionally, rule books for exceptions, such as
those used by payment providers like FedNow in
the US, are essential for streamlining processes
and enabling automation. These rule books
also need to be standardized across all system
providers. Automation, guided by clear rule
books, reduces manual intervention and speeds
up resolution times. However, some payment
systems, like CHAPS in the United Kingdom,
lack standardized rule books, complicating
global exception workflows.
Best practices for handling payment exceptions
involve implementing automated, standardized,
rule-based systems with the support of reliable
technology partners. This ensures consistency
and efficiency across different payment rails.
Automation is vital for reducing the manual
workload and enhancing exception management.
The challenge of free format messages is that
SmartStream’s TLM Aurora Advanced Payment
Control (APC) provides financial institutions
with a single, integrated solution to track,
monitor, and investigate all payments. Highly
sophisticated, it enables firms to streamline and
optimize investigations and reconciliations,
irrespective of the payment system used. APC
offers a standardized way of working through
its pre-configured workflows, which allow the
automation of large parts of the exception-handling
process. These workflows guide users through
the exception lifecycle, virtually eliminating the
risk of errors, improving resolution times, and
reducing costs. Sophisticated analytics within
the solution provide valuable insights into the
root causes of failed or investigated payments,
empowering financial institutions to address
problems at the source and understand the effort
required for different exception types, payment
systems, or correspondent banks. This support for
instant payments through advanced automation of
reconciliations and investigations across payment
rails represents a significant advancement in an
era of instant payments.
Driving Operational Excellence to Meet Customer Demands in an Era of Instant Payments
7
CONCLUSION
offers integrated solutions to automate large parts
of the exception handling process, reducing manual
intervention and error rates. Furthermore, the use
of sophisticated analytics provides insights into the
root causes of payment failures across the payment
corridor, enabling financial institutions to tackle
issues proactively and optimize their processes.
Emerging technologies, particularly AI, hold
promise for further improving exception
management. AI can automate detection rules,
identify high-priority incidents, and assist in case
handling, thereby enhancing the overall efficiency
of fraud detection and payment investigations.
As financial institutions consolidate and
modernize their technology stacks, while adopting
cloud-native platforms, they must focus on
integrating these advanced technologies to stay
ahead in the rapidly evolving payments landscape.
The future of payment exceptions and
investigations will be shaped by the adoption of
continuous operations, advanced automation, and
data-driven insights. By embracing these strategies,
financial institutions can navigate the complexities
of instant payments, drive operational excellence
and meet the demands of their customers.
The transition to instant payments has
revolutionized the financial landscape,
offering unprecedented speed and efficiency in
transaction processing. However, this rapid
evolution also introduces new challenges in
managing payment exceptions and investigations.
The increased volume and complexity of
transactions necessitate robust exception
management systems to maintain operational
efficiency and, most crucially, customer satisfaction.
The adoption of ISO 20022 as a global messaging
standard represents a significant step towards
enhancing interoperability and consistency in
cross-border payments. This standard allows
for richer and more structured data, which can
improve the efficiency of transaction screening
and compliance processes. However, inconsistent
implementation across different regions and
institutions can undermine these benefits, leading
to continued fragmentation and inefficiencies in
the payment ecosystem.
As the volume of instant payments grows, so will
the frequency of payment exceptions. To address
these challenges, automation and monitoring
emerges as a critical solution. SmartStream’s APC
SmartStream is a recognized leader in financial transaction management solutions that enables
firms to improve operational control, reduce costs, build new revenue streams, mitigate risk and
comply accurately with regulations.
For more information, please visit www.smartstream-stp.com.
Kapronasia, an Atlas Technologies Group Company, is a leading consulting and market research firm
specializing in fintech, banking, payments, and capital markets. Our services aim to equip clients
across the region with the necessary insights to capitalize on their most valuable opportunities and
maintain a competitive edge in the market.
For more information, please visit www.kapronasia.com.
