Real-time payments: driving future innovation in the US
Moving money efficiently and quickly is essential for modern-day life and commerce. To that end, there are now over 46 countries live with instant payments schemes and the global real-time payments (RTPs) market is set to reach $26 billion by 2023, according to research by Markets and Markets. But not every RTP journey is the same.
In the US, the maturing RTP infrastructure is a catalyst for wider payments transformation initiatives which will increase competitiveness and deliver new, enhanced and resilient services for customers. Yet, significant challenges must be addressed before these opportunities can be realised.
Real-time hitting the big time?
Unlike many other countries that have responded to market demand with an incentivised, centralised, government-led faster payments network, the US has evolved differently due to its size, complexity and tradition of market-driven innovation. Exploring different approaches, by definition, takes time before consolidation to the dominant paradigm can take place.
After a relatively steady start, we are now starting to see RTPs become firmly established across the US. The Clearing House (TCH) is driving up the volume through its RTP network throughout 2020 and beyond, and momentum will accelerate when the FedNow RTP scheme comes online in a few years.
Moreover, compelling use-cases are gaining traction. ‘Request for Payment’ pilots are promising to make bill payments quicker and easier, while business-to-business B2B payments – constrained by paper checks – are an obvious opportunity. New challenges are also being discovered, but with new challenges come new solutions. Due to COVID-19 in the US, more people are shopping for friends, families, neighbours – so “split the check” and “split the rent” features have been joined by “split the grocery bill” feature on mobile apps.
This means it is decision time. Financial institutions will have to decide whether they adopt early or sit tight and wait for the Fed scheme to roll out.
Whatever the strategy, it is important to understand that RTPs are just one part of a broader payments transformation picture. Consumers now demand simple, experiential and instant products and services. And if banks want to stay competitive, they simply can’t afford to wait.
Starting the journey
This means tackling complexities head-on in order to future-proof businesses.
Transforming core architecture can be a daunting prospect, though. Banks are understandably concerned that migrating away from legacy solutions will be too expensive to yield a short-term return on investment or could even tear apart their core banking functionality completely. Neither is necessarily true, though, and it all comes down to the game plan.
It is essential that financial institutions begin their transformation journey with a strategic, enterprise-level roadmap to ensure new technology adaptation delivers a platform for future innovation. This is easier said than done, and because there’s no one-size-fits-all answer, financial institutions should look beyond ‘silver bullet’ technology platforms in favor of collaboration to find the right solution for their business need. Often, it’ll be cheaper and deliver a better path to the rapid development of new, resilient products and value-added services that can both retain and attract customers. Furthermore, it will allow individual business lines to fund the initiative that makes sense for their business plan, rather than forcing a business line to make investments “for the common good” – which rarely happens.
Payment transformation and modernisation need not wait for RTPs to go mainstream in the States.
First-mover banks will be best-placed to support emerging technologies and business models and be ready to harness the power of RTPs.
It is critically important, therefore, for financial institutions to define their payment strategies now. For those with clear and executable transformation plans in place, this is an unprecedented opportunity to assert digital leadership, reduce risks and costs, and maximise value from investments.