In an interview with PaymentsJournal at the 2021 Money20/20 event, Matt Nilles, Director of Client Solutions & Products at Euronet, spoke about how banks can approach their real-time payment roadmap. The following transcript was edited and condensed for clarity.
What does the adoption rate of real-time payments look like from your perspective?
We’re seeing the exact same thing where we know that real-time payments are coming, but the struggle is that it’s a new trend for all of us. We all know Venmo, we all know PayPal, and we think it’s real-time payments but it’s not truly real-time payments. The fact that real-time payments are coming to the U.S., right now, is primarily thought of as peer-to-peer. We as consumers know it, but banks really need to jump on the trend, and they see that it’s going to take over the payments landscape for the foreseeable future.
Now there’s a difference between seeing a trend coming and being ready for it. We found that a lot of the small to mid-tier banks know real-time payments are coming, but they aren’t technologically set up for it yet. They’re getting into the research or getting into the due diligence of getting their tech stack ready for real-time payments, and that has become a bit of a problem for them because they see that it’s going to be an ISO 20022 message type. A lot of these banks are dealing in an ISO 8583 message type, which can be a disconnect between the bank and The Clearing House, whether it be TCH or FedNow in a couple of years. While it’s a trend that’s coming, the small to mid-tier banks are really trying to prepare and get ready from a technology standpoint, and that’s what we help them with.
Are small and mid-tier banks having issues with implementation due to legacy systems?
When we look at the banks that we talk to on a day-to-day basis, and even prospects that come down the road, we have found that they have a legacy system in place. And the great thing about a legacy system is it’s been up and running for years and going very well.
The problem with the legacy system is it can be viewed as a monolithic codebase, so it’s very hard to turn the steering wheel to real-time payments because it’s very stagnant, it’s held together by bug fixes and duct tape years over time. What we have found is that a lot of these small to mid-tier banks are noticing that with each and every new payment trend that comes up, they are starting to feel the burden and the problems that are tied to a legacy system and starting to make a pivot to more of a microservice based architecture where they can take small chunks of code [and] start to introduce that to the legacy system. Over time, you eventually replace the monolithic code base, you get to a nimbler architecture behind the scenes in your tech stack. That’s what many of the small and mid-tier banks are preparing for is to become that more agile, nimble solution instead of a monolithic codebase that is hard to dictate and move around.
What we have done with Euronet is we have developed our solution in a microservices-based architecture, which we feel will better prepare not only us as a solutions provider, but these banks to meet the upcoming payment trends that seem to come every six months or so.
What does a real-time payment roadmap look like?
What we’ve seen is that change is hard no matter how big the bank is, [but] especially for small to mid-tier banks where maybe the capital isn’t there that you would run into a tier one. So that two to five-year roadmap is really all hinging on the nimbler technology stack because you need to have the ability to try something out and pivot if it doesn’t work. It’s more of an incremental innovation strategy as opposed to a Big Bang, rip and replace, disruptive strategy. Through this nimbler tech stack, you can try something out and pivot if it doesn’t work.
We’ve seen a lot of the recent opportunities move to a cloud-based infrastructure. Certainly, there are a lot of pros to that [when] you don’t have the technology to rely on in your office… It’s in the cloud and it can be more reliable. You’re able to replicate data centers easily. We’re seeing over the next two to five years a lot of the opportunities shifting to a cloud-based architecture deployment, and we’re also seeing a lot of [banks] try something out with an incremental innovation, as opposed to investing a lot of capital into starting over.
How can banks drive revenue from their investment in real-time payments?
We really look at the ISO 20022 messaging from two standpoints. One is we always think about the customer first and their experience. With real-time payments, most of the networks popping up around the world—we’re up to 56 networks around the world—are on ISO 20022 message type. What that brings is a wealth of data that you don’t get from the legacy message types that we’ve all been working with over the past 20-30 years.
When we look at the customer experience, knowing where real-time payment stands with every leg throughout the transaction, just the knowledge and the comfort that brings, the security that brings to the consumer… boosts their comfort level with the transaction itself, with the trend, and adopting all the solutions that you might tack onto the rails of real-time payment. We always look to the customer experience first, and the visibility that the ISO 20022 message type brings is really going to enhance everyone’s experience and comfort in real-time payments.
Then you get into the marketing side of things, you’re going to see is this an invoice, how much is the invoice amount for, where’s the invoice coming from, and you can start to personalize and, looking again at the customer experience, bring an experience that feels more one-to-one instead of one-to-many. They feel more comfortable working with you as a Banking as a Solution (BaaS) provider and want to use other products as well. We all want to increase our stickiness…at least with the customer relationship that we have with our account holders. The ISO 20022 message type bringing that wealth and data that we haven’t seen in previous message types will boost that customer experience and that relationship.
Is there an advantage to being an early adopter of real-time payments?
When we look at real-time payments, it’s really two components. One is the connection, the rails, and that is going to be commoditized quickly. Everyone’s going to connect, everyone’s going to have that. Where you really start to differentiate yourself from your competition, whether it’s within your region or multinational, is through the digital overlay services that you then tack onto the rails. The early adopters are going to have first say and really define the market.
When you look at the U.S., you really do need to start preparing for FedNow today. We know it’s going to be out in 2023. Now is the time to get involved, now is the time to really have an impact on what that network looks like and talk to your peers that are in the industry with you to start to define those digital overlay services that will become prominent in the U.S.
We’ve seen a handful rise to the top around the globe, things like Request to Pay bill payment, we’re seeing more B2B digital overlay services come to fruition and start to take over. We really all think of real-time payments as peer-to-peer—you go out to eat pizza with your buddy and you want to split the check. It’s become so much more than that, and the business use cases are really starting to drive adoption of the networks [and] the activity within [them.] As an early adopter, you really push yourself to the front of the crowd and start to define those use cases and capture market share within your region as well. So, start now.