Real-time payments have gained significant ground over the past several years, with The Clearing House’s RTP service, which debuted in 2017, already reaching 61 percent of all demand draft accounts and recently being used to settle some transactions over ubiquitous P2P networks such as Venmo and Zelle.
Add to that momentum the imminent debut early this year of the Federal Reserve’s FedNow service, which will connect to all U.S. financial institutions, and instant payments are due for a boom over the near term—projected to grow at 23.6 percent through 2025, according to Global Data.
For banks, the paradigm shift toward instant payments will upend traditional models, necessitating financial institutions to re-evaluate and update their technological, operational and strategic frameworks to accommodate the requirements of providing and supporting real-time payments.
The work and investment required is significant, but banks that successfully navigate this transformation have much to gain, including cost savings, increased customer loyalty and deeper partner relationships.
In a recent eBook from PYMNTS, Mike Haney, Head of Digital Core for Technisys, outlined five key priorities for financial institutions seeking to adapt their business to be well-positioned to thrive in the rapidly developing real-time payments landscape:
1) Adopt real-time operations including dispute management and fraud protection, in order to accommodate the immediate clearing and settlement of instant payments—which can present more opportunities for fraudsters.
2) Eliminate architectural complexity to support the ISO20022 data interchange standards used by RTP and FedNow, and consider consolidating systems and transforming core banking technology.
3) Replace fee income such as the interchange and non-sufficient funds fees that banks have come to rely upon, but which will be significantly reduced in instant account-to-account payments.
4) Reduce credit card dependency, to deal with the potential reduction in demand for traditional credit cards in favor of instant payment tools such as pay-by-bank.
5) Be present at point-of-sale by leveraging the convergence of embedded finance and instant payments to solve customer needs contextually—for example, by offering bank-backed buy now, pay later capabilities.
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