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Making instant P2P payments a reality

A successful rollout of faster payments requires collaboration across departments within the bank and also with third-party service providers.

May 1, 2023 / Digital Banking

It’s no surprise that 84% of consumers have used a peer-to-peer payment service, and at least 44% use one weekly. This is a huge growth opportunity for financial institutions, especially as the Federal Reserve prepares to launch its FedNow Service in 2023 that will expand the reach of real-time payments and bringing even more value to P2P payments.

Before making significant changes, banks should first determine which faster payment solutions should be offered, which requires a deep understanding of their customer’s needs.

For retail customers, faster payments will make it possible to send funds to a friend or family member in real time, and will also allow customers to make bill and loan payments instantly. Additionally, request-to-pay functions will further enhance the payment experience for customers. Request-to-pay functions allow payees to send messages to payors that ask them to pay bills and allow payors to determine whether to pay the amount requested, inquire about alternative payment terms or even deny the payment outright.

To successfully roll out faster payments and request-to-pay functions, banks must first determine which bank products will be supported by these new payment offerings and what technological or operational changes are needed to execute them. It’s also important that banks educate customers on the new offerings. This includes helping customers understand how to prevent financial losses, how to initiate the real-time payment, and the implications of using instant payments. Proactively offering helpful tips can help reduce losses while improving the customer experience.

While customers are the primary focus, it’s pivotal to consider how faster payments will impact existing banking applications. A successful rollout of faster payments requires collaboration across departments within the bank and with third-party service providers, including your bank’s online and mobile banking provider.

Consider the following questions when thinking about existing applications:

  • Can the bank’s vendors support the necessary user experience updates for online and mobile banking, as well as their bill pay platform?
  • To support 24/7 real-time processing, what changes will be necessary for customer support? And will this support be available to respond to customer inquiries over the weekends?
  • Are there other implications for the bank’s upstream or downstream applications?

In addition to working with their vendors, banks should ensure they have the flexible infrastructure needed to support real-time payment processing and adapt to future payment methods.

For instance, some banks may choose to send and receive faster P2P payments via one payment rail, but they may choose to adopt other payment rails later. The bank’s underlying infrastructure should be ready to support payments as they continue to evolve.

Legacy infrastructures often make it difficult to adopt new payment methods. Financial institutions now have more opportunities to modernize with a digital-first core and mobile services. Core banking systems are a foundational piece for real-time payments. The system must be able to send and receive payments and instantly credit or debit account holders. Financial institutions need the ability to adjust access to funds on the spot.

Digital channels, including online and mobile banking, should also be able to display payments and messages associated with The Clearing House or any other real-time network. There are multiple ways to achieve this, such as through API calls or database pushes. See what works with existing digital channels. Banking software, particularly for digital banking, is moving to a new paradigm of flexible development, tapping the ease of API integration that supports ongoing innovation.

As real-time payments have emerged as a critical growth opportunity and innovation, it will continue to evolve with time. Bank leaders should consider how faster payments impact their existing product suite and understand which products or services can be enhanced with real-time payment capabilities.

Faster payments have the potential to meaningfully improve the customer experience, and with proper planning, community banks of all sizes can realize the full potential of this game-changing capability.

Shaw Taylor is SVP of sales and marketing at Bankjoy.