Instant Payments and Stablecoins Demand Core Banking System Upgrades

For decades, banking infrastructure meant heavy metal — mainframes, on premises, in-house and legacy systems layered upon legacies. Batch systems and processing, and a set schedule of money movement.

The systems are creaky and limited in an age where money movement now is moving toward instant status, and stablecoins are becoming more mainstream. Neobanks and FinTechs are introducing their own financial offerings into the market.

Banks have embraced platforms and software made available through the cloud to work behind the scenes, on the back end, to integrate those innovations. In the meantime, the modern banking shift can help introduce and scale new revenue streams for banks.

The trend has been from monolithic to modular, as recent weeks have been marked by new announcements from providers, and some game changing deal-making among some of the largest players in the industry.

Connectivity in the Crosshairs

Connectivity to real-time payments rails remains a prime mover for core banking. PYMNTS Intelligence noted last month that a majority of financial institutions (FIs) see faster payments as a “must have” for new use cases in retail and commercial settings. Yet as the Federal Reserve Bank of Kansas City wrote at the end of last year, “Implementing instant payments presents challenges for Dis [depository institutions], as their core systems and internal operations were not designed for instant processing and around-the-clock connectivity. Traditional payment systems such as wire or automated clearinghouse (ACH) systems are open during set hours, and the DI receiving the payments can delay posting funds to their customer accounts until later in the day.”

Even where banks have been connecting to FedNow and The Clearing House’s RTP network, there’s a gap between sending and receiving functionalities, where among smaller FIs, 78% plan to begin with receive-only capabilities, while just 22% said that they would offer both send and receive at launch. Banks surveyed said that instant payment sending capabilities were the technical difficulty of integration (35%) and the high costs of integration, cited by 29% of banks.

Against that backdrop, Temenos announced that Commerce Bank went live with FedNow on Temenos Payments Hub, delivered as Temenos SaaS, enabling real-time payments on a scalable and continuously updated platform.

The modular approach that is enabled by core banking providers lets banks move into new offerings on a case by case basis, spanning deposits and payments without a technical heavy lift that would required if they’d opted to go it alone.

Last week, Matera said it would work with stablecoin firm Circle to integrate stablecoins into core banking, announcing the combination of “real-time banking infrastructure and a fully-reserved, transparent stablecoin.”

Those efforts are underpinned by positioning Matera’s Digital Twin real time ledger at the forefront of interoperability between local currency balances and digital dollars. The integration, the companies said, connect local payment rails, such as Pix, to stablecoins.

Elsewhere, FIS — where executives noted on the most recent conference call with analysts that the banking solutions segment revenues gained 2% to $1.7 billion, with recurring revenues up 3% — struck a deal to sell its Worldpay stake and acquire Global Payments’ Issuer Solutions business.

The deal, as PYMNTS reported last month, adds cross-selling opportunities (adding credit processing to its payments and banking suite) as banks continue to enlist the solutions provider in their bids to upgrade systems and capabilities.