As real-time payments (RTPs) are becoming more “real” in the US, financial institutions of all sizes are in various degrees of implementation and readiness. When is the right time to implement? What do clients want? What use cases are most compelling? What innovation opportunities are available? How will the new network take shape? And what changes need to be considered to get into the game?
Regardless of where your firm is along the adoption spectrum, with the first transactions taking place in late 2017, it’s real. You must understand what is driving adoption and why, as well as the key areas of impact across the payments lifecycle, to determine your readiness and ability to operationalize this new payment capability.
What is driving this momentum?
New payment platforms and solutions. FinTech and technology innovation brings new players and new competitive pressures into the traditional banking model.
Higher expectations from customers. In our digitally driven age, businesses and consumers alike don’t necessarily understand why money and transactional information, which inherently is digital, aren’t immediate. In today’s retail environment, physical products can be delivered in an hour. Why not money?
Global competition. More than 35 countries have implemented some form of RTPs. In the US, the public and private sectors have been collaborating to foster investment and adoption to keep this country competitive in the global marketplace.
Key considerations to be real-time ready
Technology. As the industry evolves and undergoes rapid change, bank executives need to ask themselves: which solutions will provide ubiquity and the best customer experience? What is the best way to integrate them into the overall customer journey, as well as the technology and operational roadmap for a change? A new RTPs capability provides further incentive for banks to either consolidate their disparate payment systems into a payment hub or review the payment hub they already have to understand its ability to support RTPs.
Also, banks are going to find it increasingly problematic to maintain a legacy architecture with inflexible payment systems that must link to a host of other core applications in this dynamic, faster payment environment. We are seeing many firms proactively addressing their longer-term payment architecture as part of their real-time readiness plan.
Operations and customer experience. Customer expectations of real-time money movement are high, and they demand real-time, digitally available account and transaction information in a highly secure environment. With the majority of payments systems and bank processes operating in a “batch” mode, integrating real-time capabilities into a batch environment will require thoughtful planning.
As payments speed up, organizations need to plan how they will support 365/24/7 core payment processing in their existing business and operating model. Making real-time account information available to your customers via their preferred channel is essential to your day-to-day RTP operational success. For all types of changes, a thorough customer communications plan that covers both customers and the employees who will engage with those customers can help support good relationships.
Regulatory and compliance. Anyone who experienced the past decade in the financial services industry can attest to the dramatic impact of regulatory and compliance issues. For every change, banks should continue to look at the regulatory implications, such as any impacts to anti-money laundering practices, customer communications, Regulation E and myriad other regulations that can be affected when money and information move faster.
Banks also must determine how best to fit RTPs into their broader enterprise governance frameworks. They should assign owners, recognize risks and institute mitigating controls to address the fundamental regulatory and compliance risks.
Faster payments impact the entire payment value chain
Faster payments will impact the entire payment value chain and require financial institutions to implement changes across their end-to-end payments life cycle, including, but not limited to, the following:
- Conversion of batch-based payment instructions to RTP messages
- Optimization of fraud management to fit into a shorter window
- Strong authentication capabilities for payment origination
- Modification of close-of-business processes to handle faster payments
- Training customers how to initiate faster payments and what to expect
- Integration of RTP into existing channels and product capabilities
- Product innovation opportunities with the build, buy or partner decisions
Enterprise-wide. The goal is to make choices that address both today’s and tomorrow’s needs and that are grounded in a thorough cost and benefit analysis that balances your organization’s value drivers (e.g., customer experience, cost, market strategy). An enterprise-wide, multidisciplinary approach (e.g., steering committee, payments council) that identifies enterprise opportunities, impacts and requirements is a leading practice that we are seeing early adopters undertake.
So what’s next?
RTPs no longer are a concept on the horizon; reality is here. Organizing your firm around this new capability by evaluating your readiness to adopt, commercialize and support RTPs should be a top priority for your institution.
About the Authors
Jennifer Lucas is an executive director and leader in the Financial Services payments practice at Ernst & Young LLP and Cerena Mitchell is a senior manager in the Financial Services payments practice at Ernst & Young LLP.