Overcoming the barriers to effective real-time payments

It is fair to say that real-time payments have come of age. Worldwide, the number of real-time payments programs has grown exponentially over recent years, rising from 14 in 2014 to 40 in 2018 with a further 16 programs expected to go live soon. It is increasingly apparent that we live in an age where instant gratification is king. More and more, consumers (retail and corporate alike) demand that services are delivered with immediacy – and that includes payments.

As consumers see it, moving money around is now just a matter of ones and zeros; so, why shouldn’t payments be instantaneous? With this in mind, it’s more important than ever for banks and payments providers to cater to this demand. Consumer’s today are spoilt for choice when it comes to deciding who to bank with and which payments services to use. If businesses want to be competitive, financial institutions need to be able to offer this much-valued service.

Real-time payments and service innovation

But real-time payments are about much more than simply protecting market-share: they also provide an opportunity to innovate and grow. Real-time payments infrastructure provides the framework over which financial institutions can launch new, value-add overlay services that will help them win in the digital age. 2018 has been the start of a pivotal shift in how real-time infrastructures around the world are used to provide contextually relevant, frictionless and immediate experiences. Innovative services launched this year have included money management apps, intelligent account onboarding and credit scoring, retailer pay apps and new P2P payment methods.

That said, with the introduction of Open Banking in the UK in January, we haven’t see the ‘hockey stick growth’ in disruptive new players coming to the market that some were predicting. According to transaction statistics published by The Open Banking Implementation Entity (OBIE) the uptake has been somewhat unremarkable on the PISP side, but there has been reasonable uptake on the AISP side. One great example of that from 2018 is Yolt, which became among the first third-party providers to complete API connections with nine high street banks, allowing users to view all their financial information and track spending on one single app. In the UK, these innovations will be built upon in 2019 and beyond as things like a consistent, and smooth consumer registration journey become normal.

Looking forward even further, the New Payments Architecture (NPA) promises to bring greater competition to the UK payments ecosystem. As well as the obvious big new central infrastructure there are lots of smaller incremental changes which added together have the potential to be more impactful. One example would be a Faster Payment transaction, which requires a binary Yes/No response, which will enable new use cases for Faster Payments for things like conveyancing and purchasing digital goods.  

The challenges of real-time operations

The opportunities of the real-time revolution will only be realised if banks and payments providers evolve their processes and technologies. Key to this task will be creating a bridge between legacy technology and new systems and payments services. Completely replacing the IT systems of a large financial institution to enable API-based, real-time payments-enabled services is often costly and disruptive. Banks and payments providers should therefore look to payments hub software to integrate new technologies with legacy systems. This software-enabled approach will help financial institutions execute the latest real-time payments solutions seamlessly, and without disruption to core business systems.

There are two further barriers to success in real-time payments and associated services. The first is operational. Real-time payments require that operations are available 24 hours a day, 7 days a week, 365 days a year. As a result, financial institutions need to move to an always-on staffing model – and this will be a big change for many. This leads to the second barrier, which is technical: with a 24/7/365 model, there’s no scope for systems downtime; making it difficult to perform systems updates.

These challenges are not insignificant. Many businesses may decide they simply don’t have the resources or technical capabilities required for real-time payments and turn to managed service to benefit from economies of scale and reduce cost.

Change is coming

We’re on the cusp of a new banking revolution, one where compelling new services leverage real-time payments capabilities to deliver next-level value to businesses. The building blocks for this new revolution are rapidly falling in place. The task now is for individual financial organisations to work out what this change means for them and how their strategy reflects that to ensure they will thrive in this new age. What seems likely is that organisations that move quickly stand to benefit the most, the only question being will the early bird get the worm, or will the second mouse get the cheese?