Modern Instant Payment Settlements are Increasingly Being Powered by NoSQL
The evolution of payment systems over the years has culminated in increased demand for instant transaction processing. Consumers are no longer content with slow interbank clearance processes that used to take from a few days for local payment processing to a week for international payments. There has been exponential growth in commerce worldwide, and with it, the increased need for reliable instant payment solutions. A report from PwC and PCI highlights that “the global digital payments market is expected to grow at a CAGR of 23.8% to reach $12.4 trillion in transaction value by 2025,” up from $3.7 trillion in 2019.
Growth on Instant Payment Systems: Europe and Beyond
Globally, 55 jurisdictions offer fast or near-instant retail payments. Central banks play an important role in many of these systems. Regional payments systems include, e.g., TARGET Instant Payment Settlement (TIPS) in the Euro area, the Faster Payment System (FPS) in Hong Kong SAR, Cobro Digital (CoDi) in Mexico, PIX in Brazil, and Unified Payments Interface (UPI) in India were set up with central bank guidance and support.
The uptake of instant payment solutions has gone beyond country borders and is now pushed by regional bodies for wide adoption by participating countries. In Europe, the European Payments Council has set standards by initiating the formation of SEPA’s Instant Credit Transfer system, SCT Inst. SCT Inst has 22 participating countries across Europe and upwards of 2272 participating payment service providers (PSPs), accounting for 56% of European PSPs. The SCT Inst has an agreed SLA of 10 seconds within which a transaction would have been initiated and completed. The system is also available 24/7/365 for participating organizations, and there is a consensus limit of 100,000 euros as a limit for a single transaction. The TIPS SLA requires the processing of 99.9% of all instant payments in up to five seconds. In India, there’s a similar solution in India’s Unified Payment Interface (UPI), a mobile-based payment system that allows access to bank accounts from different banks through a single APP. This mobile payment system allows immediate transfer of funds from a mobile device on a 24x7x365 basis. UPI processes approximately 1.5 billion transactions per month.
There is also the exponential growth of non-bank payment service providers, Neobanks, and other FinTech payments companies that, in partnership with legacy banks, or through e-money licenses, continue to extend tailor-made instant payment services for their consumers. The aim remains to be a faster and equally credible payment platform while requiring minimal startup costs, with a small physical footprint. The number of growing payment FinTech startups is phenomenal. However, to create a differentiating user experience, these payment players need an advanced data storage and processing infrastructure to comply with regulatory SLAs and meet customers’ ever-increasing expectations.
Instant Payments Require Even Faster Data Storage and Processing
The growth in the number of new payment solutions is supported by Big Data and its relevance in understanding consumer behavior, spending patterns, and payment method preferences. It depends on solution providers' ability to store and process in real-time to meet SLAs, and further analyze and understand the data to improve the service offerings. Especially in the instant payment settlement framework context, to sustain that kind of growth and achieve the same level of SLAs of TIPS and UPIs of the world, participating entities need new-age database capabilities. For a database solution to fully support instant payment system requirements, it has to at least:
- Ensure 24x7x365 availability
- Execute true end-to-end user payments within seconds
- Handle huge transaction volume (millions of transactions per day)
- Keep the cost per transaction low (pennies or less)
- Support scalability in terms of adding more instant payment partners and their systems
Here NoSQL comes to the rescue. With their non-relational architecture, NoSQL database solutions provide a flexible platform for easy scalability and cross-platform applications. In our previous articles, we have discussed NoSQL in detail; hence let’s understand this by focusing on one successful NoSQL solution provider that has already been implemented in instant payment systems.
A Case in Point: Aerospike NoSQL Data Platform
Aerospike provides PSPs with the ability not only to scale up but scale-out their real-time operations more securely and affordably. Since it uses a patented hybrid memory architecture, it requires less hardware (1/10th by their own estimate) than other conventional and NoSQL database providers. It also provides automatic scaling and capacity elasticity enabling its clients to minimize idle capacity, which might be costly in the long run.
Because of its distributed shared-nothing architecture, the Aerospike real-time NoSQL data platform can ensure that there is no single point of failure, protecting consumers from unnecessary service outages or downtime also allowing for sectional upgrades while keeping the service always on. Besides offering solutions for instant payments, Aerospike also leverages the use of ML and AI to provide real-time fraud protection, risk mitigation, identity management, clearing and settlement calculations, and real-time decisioning. The system can be deployed by payment service providers for high uptime and availability, leaving teams to concentrate on the product roadmap and delivery of better customer experience.
Instant Payment System Case Study: Aerospike Used in TIPS
Aerospike’s strong consistency technology has been used in a number of production installations, including the launch of the Target Instant Payment Settlement System (TIPS) to transfer amounts between any two European bank accounts. TIPS guarantees settlement within seconds for thousands of European banks and is unique in doing this directly in central bank money—all at a fraction of a euro cent per transaction. Aerospike is a key component of the transaction infrastructure for launching TIPS. In this scenario, Aerospike powers a shared-ledger that empowers banks to move money 24 hours a day, seven days a week, 365 days a year. This can dramatically reduce redundant technology and business processes, thereby optimizing business practices and boosting customer experience and profits.
FinTech Case study: PhonePe—One of The Most Downloaded Finance App in the World
India’s PhonePe, a payment app, tapped into Aerospike’s technology, transforming itself from a startup into a firm with $10 billion in transaction value per year. With over a billion people, the Indian subcontinent is slowly transforming into a cashless economy with over 800 million mobile phones and over 200 million smartphones. PhonePe was an early adopter of India’s UPI and now handles over 20% of all UPI transactions in India. Aerospike helps PhonePe perform real-time transaction authorization, fraud detection, and prevention, and runs an in-app recommendation engine that keeps customers engaged.
The importance of NoSQL databases for instant payment solutions cannot be disputed. The technology significantly simplifies and supports the advancement of instant payment settlements. It has the ability to reliably add much-needed flexibility for payment transactions and fast processing while also leading to the achievement of high SLAs, which, in turn, can delight the consumers who’ve come to rely on these systems—whether they acknowledge it or not.