Are banks making the most of real-time payments?

It’s crunch time for real-time payments in the US, since The Clearing House’s new rails went live in mid-November. It’ll be a phased roll-out, with eight or nine banks starting this year – and all 25 of the TCH owner banks committed to be live by the end of 2018.

But this gentle introduction belies the significance of what’s happening. The new rails will be a catalyst for the next generation of payments innovation, enabling banks to regain ground on the disruptors by unleashing a wave of exciting new payments products - both for consumers and for corporates.

Or will they?

This was certainly one of the schools of thought that emerged during two roundtable discussions hosted by Finextra in association with ACI Worldwide in the US recently. The events – timed to take place a matter of weeks before the kick-off of real-time – brought together more than 40 representatives of banks and other payments experts from across the New York and Charlotte financial communities to explore in detail both the opportunities and the challenges created by the move to real-time.

And, countering the positive spin outlined above, there was a definite sense from participants that banks have faced challenges – most specifically around the question of business case. Put bluntly, the banks struggled to justify investment in a new set of rails for which take-up is not known and which will likely cannibalise their existing business in some way, shape or form.

But while a few participants were struggling to get past this business case question, overall the banks present had succeeded in doing so. In part, this is because they have recognised the potential of going beyond the payment, to leverage the enhanced data that real-time makes possible, in order to provide new value-added services, especially to corporates.

There was also a recognition among the bankers present that getting hung up on business case and the cannibalisation challenge misses the point – which is that the banking industry needs to keep pace with disruptive innovation in payments.

As one participant memorably put it, one can imagine the Blockbuster board grappling with the business case challenge just before they passed up the opportunity to buy Netflix.

If real-time is a hygiene factor for the banks, and a development they must get behind whether it leads to cannibalisation or not, are they excited about the innovation it makes possible?

The mood at the roundtables suggested that they are starting to be. There was an acknowledgement that a set of rails developed by the banks for the banks represents a good opportunity for them to wrest back control of payments innovation going forward.

And, as mentioned, there was certainly excitement about the value-added services that become possible – leveraging enhanced data to tackle the age-old issue of receivables reconciliations, using request to pay to modernise bill payments for utility companies, and giving flexibility to corporates with non-regular payrolls in the developing gig economy, to name just a few.

The banks at the New York and Charlotte events were also clearly thinking further ahead. They were interested to drill down on real-time developments in Europe and other regions, to hear about consolidation of payments rails in markets such as the UK, and to talk about the journey to cross-border real-time payments. Future simplification of the payments infrastructure clearly appealed to participants as a way to alleviate one aspect of the business case problem.

It was also pretty obvious from the discussions that, though the banks have done a lot of work on their systems to be ready for real-time, it has in many cases been tactical.

In other words, not every institution has so far leveraged the opportunity of this seismic change as a jumping-off point for a more thoroughgoing modernisation of their own payments systems.

This opportunity to drive efficiency is still out there – and will perhaps also require the banks to rethink their cultural and organisational approaches, moving away from silos, embracing simplification, and giving an additional boost to their ability to take advantage of real-time as the spur to innovation that it clearly can be.