It’s time for banks to hit the gas on real-time payments
The shift is fueled in large part by rising consumer expectations around faster transactions, driven by digitalization during the pandemic.
Real-time payments have the potential to impact nearly every payment service, payment experience and payment system in place today, making them a top-of-mind topic for financial institutions with an eye on the future.
There is a real urgency for bank leaders to accelerate the shift to real time. This is fueled in large part by rising consumer expectations around faster transactions coming out of pandemic-driven digitalization.
Consumers and businesses expect to make financial decisions and transact instantly – anytime, anywhere. Yet many payment experiences have not kept up. Whether it’s a consumer transferring money, paying a friend, or paying a bill – or a business paying or getting paid – payments can still take days to process. And they take weekends off.
The goal of real-time payments is to match the pace of our digital lives and expectations. Here are suggestions on where to begin, what to address and how to build your bank’s capabilities.
Where to begin: Assessing priorities
Bringing a real-time payments strategy to life begins with the business case. It requires assessing priorities and articulating the desired outcomes, such as greater digital engagement, customer retention and profitability. With the business case in place, it’s critical to then secure buy-in from key stakeholders and internal teams, evaluate current systems to support the move to real time, and offer educational resources at every step of the shift.
The path to real-time payments is a journey, so plan and prioritize what capabilities to implement and when. What do you want to offer in the next six to 12 months? The next year or two, and then further out? Creating an effective roadmap to real-time payments hinges on this type of forward thinking and planning.
The foundation: Addressing use cases
Use cases for real-time payments continue to proliferate, especially around peer-to-peer (P2P) payments. For example:
- P2P payments are experiencing explosive growth – banks and credit unions are frequently seeing a 100% year-over-year growth.
- Consumers are using P2P to send and receive money from friends, family and groups.
- Gig economy companies and insurance companies are getting into the act with real-time disbursements, whether to pay a delivery driver or an insurance claim.
We’re seeing more use cases unfold, including real-time account-to-account transfers between bank accounts, real-time bill payments and supplier payments, especially for small businesses and cash-on-demand delivery. And it doesn’t stop there – there’s growing interest in areas like mobile commerce, point-of-sale and cross-border payments.
The opportunity for banks is to understand the most important use cases for their customers and consider the necessary capabilities to solve for those uses in their platform.
How to build: Phasing for the future
The path to real-time payments takes years, which underscores the urgency for banks to start now if they have not already. A phased approach through which capabilities and features are added along the way can be a smart way to build scale with real-time offerings.
Start with a platform that allows you to deploy a building-block approach – each step forward builds upon the work done in earlier stages. This makes the most of those foundational investments to move toward comprehensive real-time payments.
For many banks, the first step might be to introduce P2P payments. From there, adding other real-time services, like transfers or bill pay, may make sense before tapping into real-time networks like The Clearing House RTP or FedNow, which is piloting in the next 12-18 months in anticipation of a 2023 launch.
To accomplish this real-time growth and scale, banks should strive for powerful, real-time routing that reaches multiple networks, financial institutions and billers – and supports multiple applications through a single integration to the bank’s core. This streamlines processing, while also maximizing operating efficiency and time-to-market.
Financial institutions that build a strategy around real-time payments can pace their rollouts and have greater potential to grow with the service. Given global momentum and rising digital expectations, financial institutions that invest in real-time payments now will find opportunities for longer-term return on that investment.
Matt Wilcox is president, digital payments and data connectivity, at Fiserv.