Evolution of Payment Technologies: From Checkbooks to IPS and Crypto

Modern payment systems are evolving rapidly, reflecting the growing demand for convenient and fast financial solutions. Among traditional banking technologies, instant payment systems (IPS) stand out as the most advanced. Their name speaks for itself. Users may not even realize that these systems provide them with secure, real-time access to their funds via online banking or digital wallets.

Let’s explore how instant payment systems work, their origins, key features, limitations, and their impact on the financial ecosystem.

Payment Technology Development

Over the past 50 years, payment technologies have undergone significant transformation. Their development can be roughly divided into several key phases:

1. Check and cash payments remained the primary methods until the 1970s.
2. Electronic transfers and bank cards emerged in the 1970s-1990s, with the introduction of SWIFT (1973), Visa and Mastercard payment networks, and the widespread adoption of ATMs and POS terminals.
3. Online banking and mobile payments took off in the 1990s-2010s, marked by the launch of PayPal (1998) and Neteller (1999), the expansion of internet banking, the introduction of NFC technology, and the first mobile wallets.
4. Instant payment systems (IPS) developed in the 2010s-2020s, leading to the creation of national payment networks like SEPA Instant, Faster Payments, and UPI. This period also saw the rise of P2P payment services (Venmo, Zelle), contactless payments (Apple Pay, Google Pay, Samsung Pay), and the expansion of payment APIs (Stripe, Adyen).
5. Since the 2020s, the focus has shifted to cryptocurrencies, central bank digital currencies (CBDC), decentralized finance (DeFi), AI-driven payment solutions, and new financial models like embedded finance, open banking, etc.

Interestingly, all these technologies remain relevant today, continuing to evolve amid growing competition. At the same time, instant payment systems have gained special significance, particularly as cryptocurrencies rapidly develop.

The Rise of Instant Payment Systems

A check payment can take up to ten business days to clear, depending on various factors. A standard international bank transfer via SWIFT typically takes three to five business days. With the global economy becoming more interconnected, financial institutions have been actively seeking ways to make payment processing faster.

One of the earliest attempts to speed up financial transactions was Japan’s interbank transfer system, Zengin System, launched in 1973. Initially, it processed payments in batch mode, meaning that banks transmitted payment information electronically, but the actual transactions were settled during business hours. This was faster than paper checks but still not instant. Besides, the system was only operational during standard working hours.

The first true instant payment system appeared in the U.K. in 2008 with the launch of the Faster Payments Service (FPS). This system enabled money transfers between banks in an average of ten seconds and operated 24/7. The FPS was designed as a national, centralized interbank payment infrastructure.

The FPS processes payments in two stages:

1. Banks send and receive payment instructions in real-time via a centralized processing system (Managed Central Infrastructure, or the MCI).
2. Interbank balances are adjusted through the Bank of England.

Major banks like Barclays, HSBC, Lloyds, and NatWest are directly connected to the system. These institutions also act as intermediaries for smaller banks and FinTech companies, providing them with the FPS infrastructure.

Today, several national IPS with similar functionality have been introduced worldwide, including:

• UPI (India, 2016);
• SEPA Instant (EU, 2017);
• FedNow (USA, 2023), and others.

Core Principles and Features of Instant Payment Systems

The key principles of instant payment systems were first established by the FPS and have remained unchanged. The process consists of two key stages: clearing and settlement. During the clearing stage, the system verifies payment data and sends instructions to the recipient’s bank. The settlement, or transaction processing, is facilitated by the central bank or a real-time gross settlement (RTGS) system.

Key features of IPS include:

• transaction processing within seconds;
• 24/7 availability, including weekends and holidays;
• the use of phone numbers, emails, QR codes, or digital IDs as payment identifiers instead of complex banking details;
• high-level security, incorporating KYC (Know Your Customer) procedures, AML (Anti-Money Laundering) compliance, multi-factor authentication (MFA), and data encryption;
• a well-developed infrastructure that allows integration with financial platforms, FinTech startups, and B2B solutions via open APIs.

Today, people use banking platforms for instant payments without even realizing it. The most common interfaces for IPS transactions include:

• Online banking. Most banks offer instant online transfer platforms, allowing users to manage funds via desktops and mobile devices.
• Mobile apps. Users can make instant payments via smartphones using apps like Zelle (U.S.), Paytm (India), and PayNow (Singapore).
• Social media platforms and messengers. Some companies have integrated payment functions into messaging apps, such as WhatsApp Pay and WeChat Pay, providing instant payment access to their users.

The Impact of IPS on Banking and Competition with Stablecoins in Cross-Border Payments

The adoption of IPS has transformed banking by making financial services more convenient and accessible for users. Instant payment systems have also lowered banks’ transaction processing costs and minimized operational errors, contributing to the digitalization of national economies.

However, the influence of IPS on the global financial ecosystem remains limited since these systems primarily operate at the national level. In 2017, SWIFT gpi was introduced to enhance the speed of international banking transactions, but it doesn’t qualify as an instant payment system, as it guarantees processing times of up to 24 hours rather than true real-time payments.

In this context, banking solutions still lag behind cryptocurrencies, particularly stablecoins, which are pegged to assets like the U.S. dollar to maintain price stability.

Stablecoins offer the following advantages:

• faster processing times, facilitating higher volumes of international trade;
• stronger economic interconnectivity between different regions;
• reduced intermediary and currency conversion costs, increasing business profitability;
• improved financial conditions in countries with a large percentage of migrant workers.

Instant payment systems have become a fundamental part of the modern financial landscape. Their advantages are reshaping the traditional banking experience, making transactions faster and more secure. However, IPS primarily function within national financial systems, while cross-border payments remain an area where stablecoins, central bank digital currencies (CBDC), and crypto banking solutions could potentially gain a competitive edge — if technical and regulatory barriers are overcome.