- Key Insight: Real-time payments are growing quickly, creating ample opportunities for banks to improve processing.
- What's at stake: As FedNow and RTP advance, banks still face hurdles in building scale, creating technology challenges.
- Forward look: Even banks that say they have gone live with instant payments are struggling to determine who to offer it to and scale.
Last year,
"Things are really moving," Nick Stanescu, chief executive of FedNow, said in a recent video
Banks, however, continue to face conceptual and operational challenges that could hamper further adoption of real-time payments. Notably, more than 60 other countries use real-time payments and do significantly more volume, according to Gareth Lodge, principal analyst on the payments team at Celent. "And just look at Zelle — the volumes there clearly show there is a demand," he wrote in an email. Nonetheless, real-time payments in the U.S. are still in the early stages.
Here are five takeaways for banks:
Many banks fail to see the forest for the trees
Banks don't always view real-time payments adoption as a growth opportunity, according to Nick Maynard, vice president of research at Juniper Research. "They typically see real-time payments as a headache" due to the cost of integration, fraud issues and other hurdles, he wrote in an email. Instead, banks need to consider how they can differentiate their services with real-time payments. What customer segments can they help solve challenges for using real-time payments? "That proactive thinking will help to turn real-time payment challenges into opportunities," he wrote.
Many banks are still struggling to understand the benefits of real-time payments, Jim Haug, director of Kotapay, an electronic payment processing provider, told American Banker. "There's a lack of understanding of exactly how it works and what it will provide" for customers and how real-time payments can drive a bank's business. Talk to your customers — find out their needs and figure out how real-time payments can solve their pain points, he said. "It should be driving additional business to the banks."
Banks are letting the tail wag the dog
Erika Baumann, managing director of banking and payments at Datos Insights, hears from banks that many customers aren't asking for real-time payments. However, the firm's research findings highlight a disconnect.
"The number one thing that small businesses would like to see their bank invest in is real-time payments," she wrote in an email. Meanwhile, among midsize and large companies, more than 40% have switched financial institutions for access to fast payments. "I believe that when banks are waiting for their clients to ask for something, it is often too late. Businesses should not be asking their bank for products; they should be seeking solutions to their business problems, and it is up to their financial institution to be their partner."
Taking a siloed approach
Many banks are managing multiple priorities at once — real-time payments, digital assets, and AI — which can compete for attention and investment, according to Andrew Haskell, managing director of Accenture's North American payments and digital asset practice. "The takeaway is that these priorities are not mutually exclusive. Over time, they will converge, and institutions that can execute on real-time payments while investing in adjacent innovations will be best positioned to lead," he wrote in an email.
Haskell noted that many banks treat real-time payments and blockchain-based finance as separate road maps. "They shouldn't," he wrote. "We see decentralized finance and traditional finance as complementary, not competitive. Capital and institutional energy are flowing into both at the same time. Banks that align their strategies across both will unlock more value than those that treat them separately."
Operational challenges persist
Many banks are still grappling with operational challenges as they roll out real-time payments. For instance, most banks aren't open on Saturdays and Sundays, so they need to define the support infrastructure for after-hours transactions. Is it a correspondent bank? Or having light staff on the weekends and at other after-hours times to support transactions? "We're not in the early adopter, putting-a-toe-in-the-water stage anymore," Elaine Duff, senior vice president and head of money movement at Fidelity National Information Services, or FIS, told American Banker. "It's now how do I commercialize, how do I scale, how do I make it part of the ecosystem versus just being a point solution."
Scaling issues remain
Even banks that say they have gone live with instant payments are struggling to determine who to offer it to and scale, Duff told American Banker. Many, especially smaller ones, are only set up to receive payments. She expects more banks to offer send capabilities this year, but it's a work-in-progress.
Banks that are only set up to receive payments are missing the point, according to Celent's Lodge. "You're adding value to those banks who can send, but not getting any yourself," he wrote.
Banks really need to think strategically, Kotapay's Haug told American Banker. "If you're slow to adopt, all of a sudden, [customers] find the next guy that has it down the block."
