Fraud and Liquidity Management Challenges Accompany Growth in Instant Payments Use

European real-time payments have seen historic growth in recent years.

In fact, some European countries like the U.K., Sweden and Finland have even gone a step further to develop internal payment systems to supplement the Single Euro Payments Area (SEPA) Instant Credit Transfer scheme, a pan-European initiative launched in 2017 that enables ultra-fast euro payments across the region.

According to Martynas Bieliauskas, CEO at Swiss FinTech Klarpay, this upward trend has given banks a stronger foothold in the payment acceptance space, where international card schemes like Visa and Mastercard currently dominate.

But despite the potential of instant payments to improve the payment experience for consumers and businesses alike, concerns about fraud continue to plague real-time payment systems. Basically, the fact that faster payments are processed in seconds leaves little room to reverse fraudulent transactions once they are instantly sent out to the recipient, Bieliauskas explained.

And then there’s the challenge instant payments pose to liquidity management, an issue which has been in the spotlight in recent weeks following the collapse of California-based Silicon Valley Bank (SVB) and the acquisition of embattled Swiss lender Credit Suisse by its biggest rival UBS.

In the case of SVB, “withdrawals didn’t take a few days but were gone in seconds” using instant rails that operate 24/7 — a prime example of how “faster payments can make liquidity management challenging,” Bieliauskas told PYMNTS in an interview.

So, as much as SVB’s demise cannot be pinned on instant payments, he said faster payments which can “exacerbate some of these symptoms when something bad happens,” somehow played a part in the process.

Nonetheless, the ability to make instant transactions remains as popular as ever, and for Klarpay that means enabling its online business clients to monitor their cross-border transactions in real time, alongside accessing global payment acceptance and digital disbursement solutions.

The Swiss-licensed financial institution also provides digital entrepreneurs and social media influencers access to multicurrency IBAN accounts, enabling online merchants to hold funds, issue payouts and accept international payments seamlessly and quickly in 15 foreign currency accounts.

Last month, the company announced that it had achieved profitability in its first year of operations — an important milestone that Bieliauskas attributed to their focus on a sustainable business model and an organic growth strategy “as opposed to an investment-fueled” approach that demands growth at all costs.

Regulation as the Starting Point

The artificial intelligence (AI) adoption trend is not slowing down any time soon, and Bieliauskas said the use of AI and machine learning to improve fraud detection and prevention will only gain traction moving forward.

Adoption of stablecoins is also likely to increase in the business-to-business (B2B) space as more businesses operate in countries with large unbanked populations. In those markets, Bieliauskas said stablecoins simplify the payment process by eliminating bank intermediaries and serve as a cheaper alternative to pay suppliers.

But for both AI and stablecoins adoption to really ignite, regulators “who are not necessarily known for their speed and ability to adapt very quickly” will have a key role to play, Bieliauskas noted, pointing to the introduction of electronic money institution (EMI) licenses in Europe as an example of a step in the right direction.

As Bieliauskas said, “It always starts with regulation [...] because most changes are driven either by the relaxation of rules or clarification of rules and regulations.”

Automating to Streamline, Save Costs

Asked about plans for the future, Bieliauskas said shifting towards fully automated processes will be a key focus.

And while being a digital-native company that is not bogged down by legacy core banking systems certainly has its advantages, he explained that there are still mundane tasks that need to be automated to better streamline their processes and make cost savings.

“Automation makes a giant impact both from a customer’s experience but also from a cost perspective,” he argued, adding that it helps to avoid having to set up a call center with numerous document checkers when machines can accomplish those same tasks in a much shorter time frame.

Apart from investments in automation, opening more payment corridors and payment routes is also on the agenda, expanding Klarpay’s offering beyond wire transfers into the alternative payment methods space to give users more options to pay. That, “and continuing our organic growth because so far it’s worked out for us,” he said.

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