Survey after survey finds financial institutions aren’t satisfying their customers with the ability to handle more of their banking transactions in real time. Why? Studies show financial institutions (FIs) can generate real economic value by enabling customers to handle on-the-spot payments anytime, anywhere – whether it’s across the table or across the sea.
Findings from a broad study of real-time payments conducted by market research firm Ipsos Vantis on behalf of FIS, which includes surveys conducted online with 1,508 American participants, underscore the reality that for more and more consumers, faster truly is better. At the same time, the study concluded that real-time payment services represent substantial opportunity for FIs to generate revenue and improve relationships with key consumer segments.
Here’s how the demand for real-time payment services breaks down, according to survey participants: 80% prefer it for transferring money overseas, a service that represents the largest fee-revenue opportunity for FIs; 58% seek it to transfer payments between accounts; and 41% want it to make payments to other people. Consumers already handle these types of payment transactions frequently – just not in real time. In one recent, three-month period, FIS research shows, 26% of adults who made household financial decisions transferred funds between accounts; 19% did to other people; 12% made expedited payments; and 5% transferred money abroad.
Black Hole of Overseas Payments
This latter category, transferring payments or funds overseas, remains the most problematic for consumers. Although it’s a huge market, estimated at $1.1 billion just for outbound transfers overseas, 47% of the participants in our study who have transferred funds abroad say they experienced difficulties doing so. As one focus group member put it, “It takes anywhere from two-to-five days. It leaves your account but doesn’t get to theirs. Sometimes it’s like a black hole.”
The difficulties cited included: couldn’t easily track payment progress, 11%; process was inconvenient, 11%; not informed when money received/picked up, 10%; transfer took too long, 9%; not informed about exchange rates before transaction, 8%; funds not received, 7%; security problem, 7%; not informed of fees before the transfer, 7%; didn’t know when funds were picked up, 6%; and funds transferred to the wrong account, 6%.
Outbound foreign money transfer users also indicated they would convert, on average, 47% of their transactions to real-time through their online banking service or mobile app. Although such users are more likely than others to turn to credit card providers or alternative financial services for real-time, they overwhelmingly thought that the service would increase their satisfaction with their banks, make them trust their banks more and would encourage them to do more business with their banks.
Given all this demand, what should FIs do? For one, they should offer real-time payment capabilities for their customers who want to transfer funds or make payments abroad, possibly beginning with pilot programs. Banks and credit unions should try various real-time banking scenarios, including determining what fees seem most agreeable for handling overseas payments. The FIS survey found, for instance, that 96% of users of outbound foreign money transfers would pay a fee for real-time payments; they almost expect it since they pay a fee for non-real-time services already.
And bankers should expect that these users are likely to be willing to pay a premium. As a group, overseas funds transfer customers have the highest incomes of any of the usage groups surveyed by FIS, with upper middle-income households ($80,000 to $99,999 in annual income) indexing high within that group. They also are 2.2 times more likely than the average household to have annual household incomes of $100,000 plus and twice as likely to have money market accounts, credit cards, first mortgages and auto loans with their primary financial institution. While this customer segment is relatively small – 5% of the U.S. adult online banking population – it offers significant “white space” opportunity and potential for generating fee-based revenues for FIs.
Clearly, banks have the opportunity to capture share from alternative service providers. Further, a significant opportunity comes in the form of a substitute to wire transfers as consumers and small businesses continue to push for an online replacement to the legacy wire infrastructure. Our survey found that an estimated $1.1 billion market exists for offering real-time payment transfers overseas via U.S. bank and credit union online and mobile banking services. The estimate assumes widespread distribution and communication of the offering to achieve high levels of consumer awareness and acceptance.
Based on consumers’ strong positive reaction to the foreign money transfer concept, the FIS research methodology estimates that about 28% of today’s target market would adopt real time at a price point averaging 10% less than what they typically pay for money transfers and that translates into an eventual revenue share of about 25% of the outbound money transfer market.
Obviously, it will take some time for real-time payment networks to be built and for consumers, businesses, billers and merchants to become fully aware of these services. But the $1.1 billion pool of revenue is inviting. And overseas money transfer users will use such networks. These users, the FIS survey found, are the most diverse in their device preferences. Eighty-four percent want to make real-time money transfers using a computer while nearly 40% want to access real time through their mobile phones or tablet devices.
Mr. Burfield is product marketing director, ePayments, for Jacksonville, Fla.-based Fidelity National Information Services (FIS). He can be reached at Chris.Burfield@fisglobal.com.
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