FedNow And ISO 20022 Are Here — What Now For FIs And Faster Payments?

Fifty-four faster payment schemes — and counting.

Real-time payments are on the radar for most banks, and the opportunity is there to grow top lines and cement customer relationships. To that end, said Craig Ramsey, head of real-time payments at ACI Worldwide, in an interview with PYMNTS, the approach a financial institution (FI) takes toward faster payments at the beginning, and at the highest strategic level, matters — quite a bit.

“If they approach it as just regulation, as just another silo, because they are being told [by governments] to do it, … they’re unlikely to realize the real benefits,” he said. However, the banks that have been and will be successful are the ones that see faster payments as the “new normal” for payments, clearing and settlement — and with the “new normal” comes new ways to do everything, from account-to-account payments to transfers across borders.

APIs allow banks the opportunity to offer value-added services that can be relatively easy to layer on top of new real-time payment rails, leading to improved customer products and services, better access to customer data and, for the FIs themselves, the boon that comes with better visibility into cash flow.

Beyond changing clearing and settlement capabilities, Ramsey told PYMNTS, FIs will have to retool the way they approach operations, bringing real-time processes to all functions, from reconciliation to customer service. In other words, the days of batch processing — and taking hours to respond to a customer’s email — are over.

Overlays

In the bid to streamline and improve all aspects of operations within a firm, and the offerings that make their way to individuals and corporate customers, FIs can overlay these new services to connect to the infrastructure that is already in place.

One key example Ramsey cited is the request for payment, an offering that he said is actively being promoted across several faster payment schemes. At a technical, basic level, the request for a customer to pay a bill is simply done through a set of messaging cycles, which ultimately results in a credit transfer sent across real-time rails. Other value propositions include mobile devices enabled to do push payments.

Beyond banks, Ramsey noted, any number of financial services firms will take advantage of overlays and real-time payment systems, as it behooves them to look for the cheapest and most secure ways of conducting transactions.

“Real-time payments typically tick off all these boxes,” he said. “The idea that a FinTech could get its customers to sign up for a fantastic service, but the payment takes time to get through to the beneficiary… well, that is not the proposition they want to offer.”

Ramsey added that as FIs begin to onboard faster payments, they should strike partnerships with FinTech firms, as their strengths are complementary. As he noted, banks have depth of knowledge when it comes to compliance, while FinTech firms have strength in innovation.

He pointed to India’s Unified Payments Interface as a notable example of how overlays can gain traction, and where the monthly volume of transactions exceeds 800 million. In the U.S., he said, offering another example, Zelle has seen explosive growth. With recent initiatives such as FedNow, announced earlier this year, there has been a recognition in the U.S. that faster payments are here to stay, and that banks need to get ready, fully, for real time.

The Merchant Is Critical 

To get faster payments to truly take root, Ramsey said, merchants must be actively involved. Software development kits (SDKs) can enable these critical components of the commerce equation to connect with real-time schemes, and leverage requests for payments. They are also likely to be drawn to the reduction in costs, as they need not pay interchange fees.

There are, however, some speed bumps that need navigation.

In response to PYMNTS’ question about whether concerns over security may hinder real-time payment adoption (after all, faster payments mean faster fraud), Ramsey said eCommerce in general faces challenges when compared to brick-and-mortar commerce.

At the actual point of sale, he said, a contactless EMV payment at a register or kiosk is hard to beat in terms of speed and security. Tap the card, the payment goes through and the customer continues on their way.

In an eCommerce setting, there are inherent benefits that can lead to a safe and satisfying customer experience. Ramsey noted that when a customer logs into a site, all the details are in place to encourage an embrace of faster payments (including the mobile device and number where IDs can be verified), and the request is sent for an ultimate “yes or no” confirmation.

“That can feel, to me as a customer, like a more secure transaction than having to offer up credit card details to a website,” he said. “It’s a great customer experience, and the merchant can receive their funds instantly.”

If merchants get their funds faster, that lets them manage liquidity and inventory in a more efficient way, with positive ripple effects up and down supply chains, Ramsey added.

B2B, Too

Better liquidity management benefits the B2B side of commerce, too, and faster payments also carry a wealth of information. The adoption of ISO 20022 means data flows automatically and in a streamlined manner between firms. As Ramsey cautioned, it’s important to note that the data tied to payments can be contoured, offering companies the option to gather only what they need to know.

In fact, there may come a time when stakeholders need to think about whether the information related to the payment should be treated separately from the financial settlement.

“They don’t have to be attached to one another, but they should at least be cross-referenced, simple and able to be re-combined at the other end of the transaction,” he said.

Regardless of whether the FI is serving individuals or corporate customers, said Ramsey, “the bottom line will be giving customers choice and flexibility, and making all of those technical connections totally transparent.”