The payments industry is expanding rapidly, with exciting new developments and technological capabilities constantly emerging. Real-time payments (RTP) is one such area of expansion, as RTP systems allow financial institutions (FIs) to step away from operating manual decision-making processes and focus their energy elsewhere.
Beyond that, banks now have the opportunity to leverage analytics to improve the end user experience. And at the same time, platformification and collaboration between banks and fintechs continue to propel payments capabilities forward.
To take a deeper dive into these topics, PaymentsJournal sat down to speak with Robert Mancini, Head of Payments Solutions, Americas at Finastra, about what to expect for the future of payments systems in the modern world’s globalized economy.
1. Real-time payments will finally gain traction in the U.S.
Unlike other countries, real-time payment implementation is not mandated by any regulations in the United States. This means that banks have been free to add RTPs at their own pace, making implementation slow to roll out. Now, things are beginning to change.
A common misconception in the marketplace is that RTP exclusively refers to the ability to send a payment faster, but that isn’t necessarily true. “Rather, it’s about sending a payment on demand,” explained Mancini. RTPs processes can be built around a number of use cases. For example, if consumers want to send a business-to-business (B2B) payment, financial institutions can build a system that allows them to send the payment immediately if a set of conditions are satisfied.
Though RTPs were originally intended to be used for B2B payments, person-to-person (P2P) payments are what really launched the now “hockey-stick” growth of real-time payments. Even so, the takeoff in RTP system implementation has led many financial institutions to resume pushing their RTP B2B capabilities onto corporate and commercial customers.
2. Real-time payments will open up opportunities for financial institutions and consumers
The adoption of real-time payments in the U.S. has been largely driven by banks’ shifting mindsets regarding RTPs. A year ago, banks were primarily concerned with whether they had the business case to implement RTPs. But they are now beginning to approach it more strategically as a way to further differentiate their value proposition to consumers.
Enabling real-time payments does more than add value to consumers. As banks work toward a technology-driven systematic approach, and introduce artificial intelligence (AI) and machine learning (ML) capabilities, they are rewarded with improved operational efficiencies. This is particularly true in comparison to traditional payment channels, such as paper checks and money wires, which require manual intervention or internal approvals during processing.
To drive the enablement of RTPs, banks must be up to the task of boosting their technological capabilities. This includes prioritizing security related to RTPs by improving technology in a number of areas to specifically mitigate the risks associated with payments being initiated in real time.
3. Banks will leverage analytics to improve the end-user experience
“When it comes to using data, the conversation starts to shift from RTP to platforms, APIs, and leveraging the broader ecosystem,” noted Mancini. Financial institutions today are still very structured and siloed in terms of data storage. Banks have vast amounts of data, but don’t know how to effectively manage or use it. This challenge with data is largely caused by it being held in too many different systems and business groups, which reduces visibility across the data set.
By changing how this data is used, FIs can offer a more insightful user experience. In other words, “by using a platform and leveraging APIs and micro-services in real-time fashion, financial institutions can start filling these use cases.” added Mancini. “The power comes in using the platform as a collaborative tool to innovate throughout the ecosystem.”
4. Banks will partner with fintechs to drive the payments experience forward while remaining cautious about data sharing
Many fintechs offer platforms that enable the broader digital experience bankers are trying to create. However, banks continue to be very conservative and cautious with how they are sharing data with their fintech partners. But by leveraging a platform, and by having fintechs and technology companies integrated and certified on that platform, banks can better manage what data fintechs have access to.
For example, there may be a fintech that would allow a bank to enable a broader digital consumer experience, and it only needs a handful of specific data sets to do so. By leveraging the platform, banks don’t have to be as concerned about going through extensive partner management efforts, as it will have the checks and balances in place to mitigate security risks and disclose only necessary data.
“Banks won’t just readily hand all of their customers’ data to fintechs,” said Mancini, who added that “it’s going to be a journey, and one that will be very limited in terms of taking a cautionary approach and seeing how it goes.”
5. The customer experience will become even more seamless
Despite the lack of a RTP regulatory mandate, U.S. banks are still facing a significant amount of market pressure to implement RTPs into their offerings. Just as mobile banking drastically changed consumers’ expectations for retail and e-commerce transactions, consumer expectations will similarly drive the adoption of RTPs and other seamless payments experiences.
Speculating upon what consumer-centric features banks will offer in the future, Mancini said that “banks may be able to pay consumers’ bills at the end of the month, invest surplus money in their accounts according to cash flow, future commitments, and risk factors, and really manage their entire cash flow and financial needs to transform banking.”
This transformation could change banking similarly to how Tesla is changing driving. Just as Tesla has shifted toward driverless, banks could shift toward a “driverless” consumer experience that largely eliminates the need for consumers to manage their own finances.
Mancini anticipates banks will undergo this transformation in three phases:
- Building platforms, moving to the cloud, and leveraging APIs to build cross-functional solutions that transform the digital experience for customers.
- Transforming themselves from the inside out by re-imagining the banking experience.
- Implementing “driverless” banking experiences into its services.
When it comes to enabling tech, timing matters
Though there has been some concern within the industry that big tech companies such as Apple, Google, and Microsoft will take over banking, Mancini doesn’t see that as an immediate threat. Traditional financial institutions have the advantage of trust, as consumers are much more distrustful and wary of tech companies than they are banks.
One threat that tech companies do pose to banks, however, is timing. If banks wait too long to invest in technological advancements needed to improve the customer experience, they are putting themselves at risk of losing customers. Early-to-adopt banks will have an advantage, as the current model ultimately won’t meet consumer expectations moving forward.
The takeaway? Consumer demands drive technological capabilities forward
Banks need to strike a balance between adjusting their internal structures and operating models as they adopt the technology needed to keep up with consumer demands. Real-time payments, improving the end-user experience, and banks partnering with fintechs all come down to one underlying theme: meeting consumer needs and demands.