Real-time payments are here. And many banks aren't ready.
In the U.S. and across the globe, financial institutions are wrestling with evolving consumer expectations, razor-thin margins and increased competition.
Yet, significant opportunities are there for those who have built a foundation for innovation. Many payments transformation strategies are well underway, working to revamp legacy core architectures to support emerging technologies and business models, set themselves up to harness the power of real-time payments (RTP) and to take advantage of an advancing infrastructure.
The question is – are you ready?
Readiness, deployment and adoption of RTPs varies greatly around the world. In the fast lane we have markets where RTP adoption has been accelerated by regulation, central bank mandates and user-friendly pricing, such as Chile and Mexico. Countries where low bank uptake or overly complex user experiences have stifled growth, like India, naturally sit in the slow lane.
After a steady start, the U.S. is ready to hit the gas and join the many mature markets now comfortably sitting in the middle lane, with RTP on course for 20 – 30% growth. At a recent payments industry event, The Clearing House (TCH) described how "critical mass" for account connections has been reached – an indication that we can expect TCH to start driving volume throughout 2020 and beyond. This momentum will accelerate when the FedNow scheme comes online in a few years. All financial institutions are now in the decision mode of being a "fast follower" and joining the TCH scheme, or being a "patient follower" and waiting for the Fed.
But now that RTPs are here, what does this mean in practice?
It means meeting the customer where they are – with expedited and real-time payroll and (finally) a competitive bank-centric bill payment offering, with the launch of several "Request for Payment" pilots promising to deliver the autonomy, convenience and flexibility increasingly demanded from financial products.
It means not tilting at windmills, such as trying to change entrenched consumer behavior by promoting RTPs at the point-of-sale as a better alternative to cards. It means being open and flexible to use cases that we did not anticipate – such as transferring funds in and out of mobile wallets, which has emerged as one of the leading initial use-cases for retail RTP. B2B payments are also an obvious opportunity, with a staggering 42% still completed by paper check.
The increasing maturation of RTP is an important step in the right direction but represents just one part of a broader journey for banks. In today’s hyper-competitive marketplace, ‘good enough’ is no longer good enough. Enabling the 24/7 real-time delivery of customer-centric, sticky products and services should be a key focus for all financial institutions set on establishing market leadership.
This is not lost on the many banks who are investing in transformation projects. But despite best intentions, it’s clear that some are staying on the same-old technology treadmill. This means the rate of transformation is limited to the speed and capabilities of incumbent core technology providers.
Although transforming legacy architecture and systems can be a daunting prospect, honest and open collaboration is needed to accelerate innovation as there’s no one-size-fits-all answer. On the road to meeting customers’ expectations for quicker, simpler and richer payment experiences, starting the journey in the right direction at the very beginning is the only way to deliver a transformation roadmap that will best navigate, adapt and transform core technology to deliver a platform for future innovation. This is the only guarantee of continued survival.