Real-time payments have enjoyed optional status up to this point. But they are quickly becoming an essential competitive factor for financial institutions (FIs), especially in sectors like real estate and daily payroll.
According to Jill Capicchioni, product director, payments at NCR Voyix, there’s a lack of urgency in adoption from some FIs, and it could cost them current and future customers.
FIs must be more proactive in considering not only the needs of their current customer base but also the expectations of future clients, Capicchioni told PYMNTS. In doing so, they can secure a pivotal role in the emerging financial ecosystem, characterized by efficiency, immediacy and security.
By the numbers, only several hundred of roughly 10,000 FIs have joined either The Clearing House RTP® Network or the FedNow® Service network, which is evidence that after a decade of anticipation, banks — particularly smaller banks — may not believe that real-time payment networks will lead to a true transformation of banking.
“I’ve been counseling anyone who asks me,” she said, “that this is the year of adoption, and of [FIs] getting set up to receive [instant payments], and that’s a good first step.”
But many banking executives, she said, are concerned about payments security, given the fact that real-time payment rails, especially in Europe, have experienced higher fraud rates. Moving toward ubiquity, she added, will certainly garner the attention of bad actors and new attack vectors.
Advanced technologies such as artificial intelligence (AI), and its use in detecting anomalous transactions, will go a long way toward assuaging those fears over security — and foiling the fraudsters, too, before a transaction is even sent. AI, said Capicchioni, “needs to be utilized within layers of the digital channel” and can be used on both the sending and receiving sides of the fund flows.
In addition, when asked about further headwinds, she said “there’s also a technology hurdle and a cost hurdle.”
Some banking executives are concerned that getting set up to receive instant payments may result in a negative return on investment, as they fret about seeing a reduction in fee income from other payment rails. The pricing tied to getting set up with providers and connected to real-time rails may also prove daunting, she added.
There are some green shoots emerging, as Capicchioni said, even though there’s no emergence yet of a “killer app” spurring widespread adoption. There has been significant interest in instant payments from larger business customers — as firms such as Uber, Grubhub, PayPal and Venmo have sought to reduce their expense of processing on the card rail.
“We’re also seeing a lot of daily payroll opportunities,” she said, with a nod toward the transformation of how consumers expect to get paid. “They want to get paid instantly,” she said. There’s a significant opportunity to bring instant payments to smaller business customers.
Requests for payment “holds the most promise” for consumers, she said. And in looking ahead, she said that “we need to start thinking outside the box about different opportunities” for requests for payment. It will take time, but we’ll see a shift in industries like real estate, where transactions can happen outside of bankers’ hours (and the windows tied to batch payments and wire transfers).
Capicchioni cautioned that true ubiquity needs to be underpinned by interoperability between FedNow and the RTP networks.
The lack of interoperability, she said, “has created some confusion for financial institutions, as to whether they need to be on one network or both. I think interoperability would certainly drive more adoption,” even though initiators of larger transactions know they need to be on both networks.
As banks mull the reasons why they should sign on to instant payments rails now, Capicchioni told PYMNTS that executives “should not be concerned with their existing customers asking for this technology. They should be concerned with the future customers that are not going to bank with them” if they don’t embrace instant payments. “The customers of the future are making decisions, right now, about who they want to transact with.”
As she told PYMNTS, “now’s the time to get set up — and you don’t want to be late to the party.”
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