BIS and IMF Flag Settlement Risk as Systemic Threat: Neobank Product Leads Must Rethink 'Instant' Payment Architecture
The gap between what neobanks promise and what their infrastructure delivers has always existed. Users see instant notifications; settlement happens overnight or later. That disconnect was tolerable when regulators treated speed as a customer experience metric. It becomes untenable when regulators start treating settlement latency as a vector for systemic contagion.
The Bank for International Settlements documented this risk explicitly in its December 2022 Quarterly Review: FX settlement risk, the risk that one party to a currency trade fails to deliver the currency owed, can result in significant losses and undermine financial stability. Almost a third of deliverable FX turnover, or $2.2 trillion, was still at risk on any given day in April 2022. That figure had risen from $1.9 trillion in 2019. Settlement risk has increased in absolute terms in line with the growth in FX turnover, even as the proportion remained unchanged. The BIS framed this not as a technical inefficiency but as a persistent vulnerability that existing mitigation mechanisms have failed to close.
The IMF reinforced this framing in its October 2025 Global Financial Stability Report, noting that outages in critical payment systems and risk of settlement failure significantly impair market liquidity and increase excess exchange rate return and its volatility, raising the cost of FX transactions. The report called for strengthening operational resilience of financial market infrastructures and reducing settlement risks in over-the-counter FX markets by encouraging payment-versus-payment adoption and exploring digital innovations to develop interoperable financial infrastructure.
The regulatory trajectory is clear. Settlement latency is no longer a back-office concern to be managed through operational buffers. It is being integrated into systemic risk frameworks that will shape capital requirements, resilience expectations, and ultimately market access.
This matters for neobanks because the infrastructure they rely on was not built for real-time finality. Most neobanks operate API-first architectures on cloud infrastructure. Compliance checks run asynchronously. Finality happens in batches, usually overnight, sometimes over one to three business days. The user experience layer masks this reality with instant notifications and balance updates, but the underlying settlement cycle remains T+1 at best.
The practical consequence of batch processing is more significant than most institutions realise until they try to compete with a neobank built differently. When a member transfers funds at 11pm and cannot see the balance update until the next morning, that is not a minor inconvenience, it is a structural competitive disadvantage. But the competitive disadvantage is only half the problem. The other half is regulatory exposure.
SEPA Instant Payments became mandatory in Europe on October 9, 2025 for receiving payments. Banks must also pre-fund accounts in the ECB's instant settlement system (TIPS) to cover 24/7 payment flows. The ECB has described this as a paradigm shift: universal participation becomes a regulatory requirement, and increased instant payment adoption heightens exposure to liquidity, operational, and cyber risks, particularly outside market hours. The regulatory assumption is now that payments move continuously, not in batches, and that institutions must manage risk in real time.
ECB President Christine Lagarde made the architectural stakes explicit in a May 2026 speech: stablecoins do not provide the unconditional finality of central bank money, and relying on competing private instruments for settlement could undermine interoperability across tokenised finance platforms. Because stablecoins can lose their anchor in times of stress, they lack the unconditional finality that central bank money offers. A settlement layer built on private stablecoins risks undermining the singleness of money.
Lagarde's argument extends beyond stablecoins to any settlement layer that cannot guarantee unconditional finality. The promise of tokenized finance is a single, interoperable environment, but if settlement relies on instruments that fragment across competing mechanisms, that environment becomes fragmented. As a result, we are left with multiple platforms and no common anchor for convertibility.
The ECB is building its response. Pontes is the Eurosystem's distributed ledger technology solution that links market DLT platforms and TARGET Services to settle DLT-based wholesale transactions in central bank money. The initial launch of Pontes is planned for the third quarter of 2026, with subsequent improvements to be introduced step by step. The parallel Appia project aims to create a future-ready, integrated financial ecosystem by 2028, exploring deeper DLT integration including international operations and foreign exchange settlements.
The direction is unambiguous: central banks are building infrastructure that settles in real time, in central bank money, with unconditional finality. A payment is deemed final when it is unconditional and irrevocable. The earlier finality is achieved, the lower is the risk of unexpected credit exposures arising in the settlement process. The transfer of central bank money is what determines finality in the vast majority of large-value payment systems.
For neobank product leads, this creates a strategic question that cannot be answered through feature development. In a real-time payments environment, decisions must be made before funds leave the account. End-of-day batch monitoring simply was not built for that speed. The infrastructure that enables instant notifications is not the same infrastructure that enables instant finality. The former is a user interface decision. The latter is an architecture decision.
Banks that complete this transformation, replacing batch-processing mainframes with real-time, cloud-native cores, can match neobanks on speed and cost while retaining the advantages of scale, regulatory standing, and deep balance sheets. But neobanks that have not made that transformation face a different calculus. They are competing on user experience while traditional banks are upgrading their settlement infrastructure. When the infrastructure gap closes, the user experience advantage narrows.
In 2015, launching a neobank meant negotiating card network contracts, integrating a core banking ledger, building ACH connectivity, and waiting 12-18 months before a single customer could open an account. In 2026, a team of five engineers can ship a stablecoin-powered financial product with embedded wallets, instant settlement, and cross-border payments in weeks. This is not a marginal improvement. It is a structural collapse of the fintech infrastructure stack.
The competitive question is no longer whether to offer instant payments. It is whether your instant payments actually settle instantly, or whether you are marketing speed while absorbing settlement risk that regulators are increasingly treating as systemic.
The product roadmap implications are uncomfortable. Feature parity with competitors who have native real-time settlement cannot be achieved through API integrations on top of batch rails. It requires replacing the rails. That is not a product decision. It is an infrastructure decision with multi-year timelines and significant capital requirements.
The alternative is to accept that your architecture has a ceiling, that you can compete on user experience and cost within the constraints of T+1 settlement, but that you cannot compete on finality. That may be a viable position for some segments. It is not a viable position if regulators begin treating settlement latency as a resilience metric that affects licensing, capital requirements, or market access.
The BIS, IMF, and ECB are not issuing guidance for neobanks. They are reshaping the infrastructure assumptions of the entire financial system. A tokenised financial system operates around the clock, yet emergency liquidity facilities have traditionally been designed for business-hour crises. The institutions setting those assumptions expect settlement to be real-time, final, and anchored in central bank money. Product leads building on batch rails are building on assumptions that are becoming obsolete.
References
[1] BIS Quarterly Review, December 2022, "FX settlement risk: an unsettled issue,"
