Real-time payments are a challenge, but the answer is in the effective use of application programming interfaces (APIs) and the cloud.
Community banks can overcome the limitations of legacy systems by using flexible APIs to alleviate the manual work and inefficiencies associated with outdated technology. Essentially, APIs enable completely unrelated pieces of software to “talk” to each other.
Take this example as illustrative of the current challenges: A customer completes a bank transaction – say, a wire transfer with a few taps on their smartphone. This single act seems efficient, but in reality, it sets off a complicated process on the back end – a message is sent to a fax machine, which prints out a report, which is moved to an inbox. The person who sits at that desk is out to lunch, so it will be processed later that afternoon…and so on. This scenario has a bit of hyperbole, but it isn’t far from the truth.
This is where APIs come in – they allow banks’ legacy systems to fairly easily connect into cloud-based platforms and then integrate new digital solutions and services like real-time payments. With APIs, banks can do this at a far more affordable cost than a wholesale “rip and replace” of an existing core system – the idea is to integrate new digital services with existing systems as opposed to replacing those existing systems entirely.
It’s an especially salient point because most banks, especially smaller banks, are reticent to replace legacy core systems. This is due to a combination of factors, including lengthy and onerous vendor contracts that can be difficult to get out of, the perceived cost associated with replacing old technology and sometimes even fear of the unknown or reluctance to change. With APIs, financial institutions don’t have to undergo the costly and potentially risky process of replacing all their legacy technology in order to give their customers access to cutting-edge digital tools.
While we’ve been focused here on the specific case for RTPs, it’s really one part of a larger argument around the need to invest in new, API-based technology, in order to survive the banking sector’s current transformation. It’s about giving customers what they expect in order to remain competitive. The average consumer today lives in an always-on, mobile, digital and real-time world. Bankers cannot say that real-time doesn’t matter or that the status quo is fine.
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Sultan Meghji and Kelsey Weaver, co-founders at Neocova, wrote this article.
