How real is the US on real-time payments?
With real-time payments on the horizon for the US, NACHA’s Faster Payments 2017 was a key conference for payments professionals. But how close is real-time payments to becoming the norm there and what can US banks learn from other markets where instant payments are in full swing? Here are some of the insights I gained at the conference…
Real-time payments – not quite a reality yet
Real-time payments are considered the ‘new normal’ in many global markets, but the US is not quite there yet. Whilst organisations like NACHA and The Federal Reserve are promoting the adoption of faster payments to their collective memberships, in the US the choice to adopt real-time payments is optional. So the decision to implement will depend on the nature of each individual bank, its customer base and its genuine desire to innovate and offer modern high quality services.
Additionally, in today’s world, the reality is that banks globally are facing disruption from tech giants. These organisations can rapidly deliver new services to meet the demands of today and tomorrow – and that includes real-time payments. WeChat and AliPay are blowing card schemes out of the water with peak transaction volumes, unprecedented customer adoption and global expansion plans offering even more innovation. Customers are increasingly expecting live and real-time banking services – and banks cannot afford to ignore this fact.
Implementing real-time payments is much more than simply adding a new settlement mechanism gateway. Real-time payments require orchestrated process flow from payment request initiation, validation and checking, requesting to the clearing and settlement system, receiving the response, and notifying the parties.
All this must happen within a few seconds, 7x24x365 – this often exceeds the capabilities of existing legacy environments that were designed for batch processing. The challenge that banks face when implementing real-time payments is how to quickly and cost effectively integrate real-time connectivity and processing to speed time to market.
Seize the opportunity sooner rather than later
A global survey reveals that 43% of small and medium sized enterprises in the US see the ability to send and receive payments in real-time as essential to their success, and 2 out of 3 would consider switching providers if offered real-time payments capability. To me, this sounds like a great business opportunity. However, many US businesses are not even aware of plans to develop real-time schemes: 81% of US SMEs have not heard about The Clearing House’s real-time payments scheme. So, lesson number one learned from the NACHA conference – there is an urgent need for raising awareness among banks about the benefits and opportunities associated with real-time payments. Perhaps, one way would be to engage SME and retail customers to explore the use cases?
For real-time payments to truly take off, banks of all sizes need to have access to easy and affordable technology
With business case justification comes the natural law of return on investment. With real-time payments, the core basics are around funds availability, surety of payment, and clarity of balance information. The majority of banking systems are not yet equipped to handle real-time updates. From our experience banks at this stage often consider either updating their legacy payments infrastructure (very risky strategy) or replacing their general payments hub (very expensive and may not be fit for purpose). Well, it shouldn’t be the case. Technology has improved drastically in the last 5-10 years and the world shift towards open source has already proven itself as the most reliable, future- proof and cost effective. There are innovative new tools (for example, Icon’s Instant Payments Framework, which connects to the TCH gateway) that come at a fraction of the regular cost from typical vendors.
The best way to predict the future is to create it
My general advice to US banks is not to fear the unknown. Real-time payments represent new revenue opportunities and there are good, tested solutions available to adopt them. Thankfully, there are many countries, like the UK and Singapore, that we can look to for experience and there are tools built specifically to meet the demands of real-time payments environments.
Start by developing use cases for real-time payments. Speak to your customers, learn from other markets and move on to setting your own real-time payments strategy. Early adoption of this inevitable change, could lead to many new and exciting opportunities for products, services and of course new revenue streams.
This blog was first published by Bobsguide on 8th May 2017.