Banks struggle to find real-time business case

The benefits of instant payments are quite obvious in the enhanced user experience, in digital transactions, enabling cash flow and the reduced credit risk among many others. Early movers will have the pricing advantage, and then the industry will settle down much as the mobile operators have. I find it quite interesting that the banks aren't being more aggressive and assertive in defining and executing on the business case.

The title to this piece is misleading. While Matthew states the same, he also goes on to mention real-time payments is a need and where the business case is likely to lie.

Smaller start-ups are able to steal a march on the larger banks because their business case has the customer at the center and also not weighed down by the legacy costs that large banks need to contend with.

Title is perfectly fine. Matthew D says it out in as many words in his interview. He SURMISES that there might be a business case for VAS over realtime payments. Which is two steps removed from a business case for realtime payment rails itself. 

On a another note, startups are able to do what they are doing because of VC funding. Despite billions poured into payments fintech, I don't know a single truly realtime payment method from a single fintech. Venmo et al don't qualify - moving money from my left pocket (sender's wallet a/c) to my right pocket (bene's wallet a/c) in realtime does not qualify as a realtime payment method.  

http://qwt.io/s_ketharaman/XjMR

Why would they not want to take market share from the card schemes?  For many consumer transactions, real-time payments will be preferable to credit/debit cards - beneficial for both consumer AND for business.

...partticularly for mobile, where using cards is far from optimal.

"Less and less margin" is a poor reason for inaction.  If the banks don't move, for fear of loss of margin (seeking to prolong higher-margin products), it leaves the way open for competitors.  Fear of canibalisation only leaves others with a route into your market - eat and reinvent yourself, for someone who is not you will not hesitate to eat you.

Can anyone pray tell me who are these competitors? I'm looking for a fintech that can give me a credit card. My bank promised me an addon card one month ago but I still haven't got it, so I'm in the market. 

For retail customers such as you and I, Instant Payments should be seen as a fundamental right rather than a luxury and so for banks it must be seen as a mandatory servcie rather than an option based on the Business Case.

Building a business case for such things is always farught with the danger having to traverse many orbits from the core proposition to paint potential revenue streams and in the current context of so much change it is almost impossible to predict something with any meaningful level of accuracy.

This is part of the coer infrastructure and so long as fintechs dont enter into the area of providing alternate infrastructure but ride on the ones that  current systems have, there will be a long way before banks get  displaced in the payments business.

As someone who has a sense of the cost involved in setting up and maintaining this infrastructure, I respectfully disagree. There has to be a way that the actors are incentivized to build it, and keep it running. Running a real time API based instant settlement system is definitely more complex than a batch oriented one. And for most real life scenarios, it is a 'nice to have', not essential. When two parties want instant settlement, they should be ready to pay a premium or give up the rights on liability or both - just like for cash. And before you say cash is free - check this out that shows just the cost of printing cash is as high as 5% to 6% for low denomination bills and way higher for coins - all paid for by the taxpayers. I'd rather see a shift to digital currency (and yes, in some cases with instant payments), and have the banks given the freedom to charge a similar discount rate to make profits. But, the government is surely to get in the way. :)

Sorry missed posting the link to US treasury site with costs of note production - https://www.federalreserve.gov/faqs/currency_12771.htm 

In a free market, customers can't unilaterally decide what is a fundamental right and what is not. Besides, even if something is a fundamental right, it doesn't have to be available for free. All of us - including Matthew D - seem to be forgetting that realtime payments are already available in many parts of the world - India (RTGS), UK (CHAPS), USA (FedWire) - just that you got to pay for it.

In several world regions, regulators are forcing the banks to open up APIs to services to promote more competition.  FinTech startups dont need to build the real-time infrastructure (which, to achieve something ubiquitous would most likely be time- and cost-prohibitive anyway), they only need to ride on the existing real-time rails that are developing, eg in UK Faster Payments, in Singapore Fast Payments.  There is a perfect storm of: regulator pressure, supplier competition, and consumer demand that potentially all combine to push the move towards real-time.  As per my first comment, just because the banks are fearful of cannibalizing existying (higher margin) business, that won't stop it.  Also, remember that real-time payments has the potential to cut out the card schemes, and there are going to be many many folks lining up to take a slice of that pie.

On my credit card, as a consumer, I get rewards, deferred payment, fraud protection and revocability. How many of those benefits will I get with realtime benefits? Why will realtime payments be more beneficial for consumers? 

Hi KS, There's no reason whatsoever that you can't get rewards and fraud protection on RTP, that will happen. As to deferred payments, doesn't that defeat the object?  At present, AFAIK systems like Faster Payments (UK) make payments IRrevocable. That is presented as a benefit.

Hi @DavidIngram:

When I pay by credit card today, the merchant treats it as money in his hand and supplies the product / service immediately. I still get to enjoy deferred payment. So I don't see how deferred payment via credit card defeats the purpose - for either merchant or consumer.

Irrevocability may be a benefit for the merchant / payee but it is either neutral or disadvantageous for the consumer / payer.

Sorry but "No reason why not" is not a compelling reason to switch! If and when RTP offers rewards and fraud protection à la credit card, we'll see. BTW, does any bank offer rewards for making UK FPS payments now? I didn't know a single one that did when FPS was launched 8 years ago.