Real-time payments are closer to reality, but banks have a lot of kinks to iron out behind the scenes before they can launch that service for their corporate clients.
A new report from Aite Group suggests that there is little consensus about how banks will delegate operational tasks within their companies, how much they will charge commercial customers, whether they can set deadlines for same-day transactions, and which support services they will offer customers. These are all matters that will need to be settled before the industry can provide comprehensive, ubiquitous services.
“It’s a lot more than just saying, ‘I’m now going to offer this.’ There’s legal, there’s risk, there’s compliance, there’s operations, there’s implementation, there’s so many aspects,” said Erika Baumann, a senior analyst with Aite Group. “At this point, banks have to get away from the high-level strategy, to actually digging in, learning from the early adopters and as an industry coming together to ramp up that volume.”
Faster payments are already a reality in other countries. In the U.S., faster payments products in the consumer space, like Zelle and Venmo, are influencing expectations in business banking, and banks see an opportunity for additional fee income in helping their business clients move money faster.
Executives at PNC Financial Services Group, for instance, have been vocal in identifying corporate payments as a huge opportunity for growth.
“What's surprising to a lot of folks though is … over 51% of our corporate clients still use checks to move money around,” Chief Financial Officer Rob Reilly said at the Morgan Stanley Financials Conference in New York this month.
Indeed, the $379 billion-asset PNC is one of six banks that participated in The Clearing House’s real-time payments pilot and has invested in some of the technology needed to make fast payments happen.
After falling behind much of the globe, the U.S. has made strides over the last three years in standing up faster payments. Last July, a panel convened by the Federal Reserve established a goal that by 2020, anyone with a U.S. bank account should be able to receive payments in something close to real time. The system developed by The Clearing House, which is owned by many of the nation’s largest banks, went live in November.
But most U.S. banks are behind the curve, and even those that could be considered fast followers “are finding that they’re uncovering some questions that they hadn’t considered,” Baumann said.
In her report, Baumann asked bankers how they planned to handle customer support, pricing and end-of-day cutoff and other considerations.
Where operational ownership is concerned, 40% of banks plan to use a shared-services model, in which the departments responsible for ACH, wire transfers and check payments will simply add real-time payments to their responsibilities. Another 30% said they didn’t know how they would assign operational responsibility for real-time payments, and 15% said they planned to build out a separate function entirely just to handle real-time payments.
Another important matter is how much to charge for real-time payments. Forty percent of respondent banks told Aite Group that they will set a price point somewhere between the cost of a wire transfer and the cost of an ACH payment.
With wire transfers costing anywhere from $5 to $25 and ACH transactions typically not costing more than $1, that leaves a wide range, Baumann said. Charge too little, and a bank will struggle to make the business case for keeping it around. Charge too much, and clients may not see the value in the service.
Sarah Grotta, director of debit and alternative products at Mercator Advisory Group, agreed that the price point for real-time payments is critical.
“I think [the price] has to be little closer to the ACH range than the wire range in order to get any sort of market uptake,” she said.
And what about the end-of-day cutoff time? Though the Clearing House’s real-time payment system mandates an end-of-day cutoff of 11:59 p.m., just 20% of banks said they planned to use that time as the cutoff. The vast majority, or 65%, told Aite Group they didn’t know what time the end of the day would be, while 10% put it at 10 p.m. and 5% at 11 p.m.
Banks have not reached a consensus yet on whether they will offer corporate clients 24/7 support for real-time payments, either. Just 20% of Aite's respondents said they would, while 35% said they would not, and another 45% were undecided.
But customer support is especially important when one failure can damage a bank’s reputation, Baumann cautioned. She envisioned any number of mishaps that could happen in a real-time payments environment. Maybe clients need to send out a payment after hours and encounter a system malfunction, or they send a payment around the cutoff time and find the transaction did not settle when it was supposed to.
When that happens, it is important that someone pick up the phone and help that client.
“The corporates are talking to each other, and there’s a lot of chatter about lessons learned and what works and doesn’t work, so it’s really important that you get it right,” Baumann said. “We have to think differently in this world. This is a 24/7 world where the gears don’t temporarily stop turning during those overnight hours.”
Kevin Wack contributed to this article.
Updated June 22, 2018 at 12:06PM: This story has been updated to add clarity about the source of some of the data cited.