As Real-Time Payments Accelerate, Companies Need to Get Operationally Ready
Although real-time payments (RTP) are experiencing rapid growth worldwide, many financial companies lack the infrastructure necessary to take advantage of this growing trend. But it’s less about capability, and more about “operational readiness.” In order to achieve operational readiness, businesses must have both their front-end and back-office systems working in unison to process payments instantly.
During a recent webinar, PaymentsJournal sat down with Casey Scheer, Director of Marketing at BHMI, Cheryl Gurz, RTP Product Manager at The Clearing House, and Sarah Grotta, Director of Debit and Alternative Products at Mercator Advisory Group, to discuss the state of real-time payments—the latest trends, the challenges that companies are facing, and how they can be better prepared to accept RTP.
Where Real-Time Payments Currently Stand
Toward the end of 2021, Mercator released a survey of more than 3,000 consumers about their familiarity and experience with real-time payments. A large share of respondents (54.5%) said they have never used a service that allowed fast money transfers.
That said, nearly half of respondents experienced real-time payments to some extent. Roughly 21.8% said they’ve used a person-to-person (P2P) service such as Zelle to quickly transfer money, while slightly fewer respondents (19.3%) had used a P2P app to send funds to a person in another country. The various use cases outlined in the survey, including the ability to pay a bill quickly, as well as get a refund back immediately, show that there’s still a lot of opportunity for education.
Developing Trends in RTP
A big driver of real-time payments use is that funds are received instantly, or in some cases, within a few minutes. And nearly three-quarters of consumers surveyed rated having the ability to pay their bills instantly at least somewhat important.
“This is a use case where we’ve seen some recent announcements from financial institutions developing solutions around bill pay, and we’re also seeing some of the fintech providers of bill pay platforms beginning to add faster real-time payment options,” said Mercator’s Grotta. “That’s spurring a lot of growth. Account-to-account transfers are [also important] , and sometimes this is actually a bill payment transaction itself because consumers may need to consolidate their balances to ensure that they have enough funds to cover an automatic bill pay.”
Grotta also shared a forecast for The Clearing House RTP Network during the webinar, based on data seen from Mercator’s primary research studies around real-time payments, as well as growth seen from other payment types like debit push payments and immediate P2P transactions. “We’ve developed this particular forecast, and in some ways, we actually consider this a relatively modest initial growth period because we realized that launching a brand-new payment rail is not something that happens overnight,” said Grotta. “But we are in fact forecasting over the next couple of years that the market is really going to be entering a period of steep growth.”
Difficulties Companies Face with RTP
One of the obstacles to RTP readiness is back-office systems.
“The front office is kind of like getting a brand-new Tesla. You’re taking a 100-mile journey and the first 99 miles, it’s new, agile, and fast,” Scheer said. “However, in the last mile of your journey, the back office is like getting into a horse-drawn buggy, and it’s slow, outdated, and not agile. It causes a huge traffic jam.”
According to Scheer, this bottleneck effect occurs when organizations have fast processing speeds on the front end and slow processing speeds in the back office. Legacy back-office systems weren’t designed to support instant payments. “These systems were built decades ago, and because of that, they’re batch-oriented and not designed to support real-time payments,” she said.
Another major challenge is most back‑office ecosystems are comprised of multiple, disparate systems that lack interoperability and cannot provide a real-time enterprise view across all payments data. As a result, companies are bogged down with manually intensive procedures to perform back-office functions such as transaction research, reconciliation, and disputes management.
A modern back-office ecosystem is capable of processing any transaction regardless of the payment type or payment source and providing real-time access to consolidated payments data. This includes supporting new payment messaging standards such as ISO 20022. However, modernizing an existing home-grown back‑office system is no easy task. It requires extensive software development time, talent, and effort.
Today, many organizations recognize the need for a modern payments back office that is fast, agile and resilient. They are looking for a back‑office system that can accommodate new faster payment methods and adapt as their needs change.
How to Get RTP Ready
According to The Clearing House’s Gurz, education is key to comprehending how RTP payments can best fit within a business. There are plenty of resources available to educate companies about RTP, including public websites and podcasts.
The next step is connectivity. Businesses must have a way to receive payments from their banks, and this requires some technical prowess. That would mean implementing batch to batch integrations, uploading BI files, or implementing APIs. It comes down to establishing which way works best within your business.
“One thing about real-time payments is that we like to call it precision payments, because it only takes 15 seconds,” said Gurz. “If I need to have a payment today due to my supplier by 5:00 PM, I can make that payment at 4:59 PM. It really puts new focus on liquidity management and your cash flow because you can schedule to the last minute.”
Gurz emphasized that real-time payments should provide a benefit, not only to the workflow and cash flow of a business, but also to customers.
“Don’t just look at your integration with your bank,” she said. “Make your customer service better.”
“Lastly, I suggest that businesses looking to become operationally ready use real-time payments to add benefit,” she said. “Don’t look at this as a lift and shift activity. And don’t look and say, ‘Oh, I’m using ACH, now let me move them all to real-time payments.’ That’s not why you’re doing this. You now have a toolkit with a new tool in there and this tool could be for your emergency payments. This tool can be for service issues. This tool should be used to solve pain points which your current payment types are not good enough for.”
As adoption of real-time payments continues to accelerate, businesses need to become more operationally ready. Educating their staff about real-time payments is key, as is establishing connectivity, as Gurz pointed out.
Modernizing legacy back-office systems is also essential if an organization wishes to extend the full benefit of real-time payments to its clients. Today, most organizations, even those currently sending and receiving payments via the RTP network, have a bottleneck in the back office. No matter how fast the authorization occurs in the front end, a payment isn’t complete until funds are cleared and settled.
To be operationally ready for real-time payments, organizations will need to embrace transformation in the back office and either buy or build a system capable of processing payments in real time and adapting to future changes in the industry.