Benjamin Franklin, the 18th century U.S. diplomat and scientist, once said, “You may delay, but time will not.” If Franklin were alive today, he might have been talking about banks’ response to faster payments.
While delay may continue to be seductive for some, in the US and other markets, time is running out for those who want to “wait and see.” Faster, or real-time payments are already here, proving to be a smart and efficient way to conduct transactions at any time, over any channel, and across the value chain. From Uber drivers being paid immediately for rides, to peer-to-peer payments in a bar with friends when you are trying to split the tab, both consumers and businesses are getting used to the idea that money can and should move in close to real time. More than 20 countries have now implemented faster payments systems. In the UK, for example, all banks and building societies are now able to send and receive faster payments¹—and nearly half of UK consumers have used P2P payments apps to pay other individuals, with 18 percent using P2P payments on a regular basis.
The seduction of the wait-and-see approach is that if you aren’t forced to change, you can delay investment and continue to collect both the fees and the float income associated with slower payments. But what is becoming clear is that on the other side of the ledger, banks are missing out on opportunities to develop compelling new products, open up new revenue streams, and give customers the “at-digital-speed” experiences that they expect in other parts of their lives. Also, “safety in numbers,” where all banks move slowly but together is a dangerous strategy if the primary source of innovation is new competitors who are coming from outside the traditional peer group.
After much delay, the US banking industry has begun taking heed of these threats and opportunities. There’s recognition that the future is already here in many European and Asian markets, so if the US doesn’t react and modernize its payments infrastructure, it will fall further behind. So the U.S. Federal Reserve and The Clearing House are both taking action to pave the way for faster payments in the US. Other participants including banks, like JPMorgan Chase, and solution providers such as FIS and Dovetail, are also piloting or joint-venturing with fintechs to offer real-time payments. Implementing faster payments in the US will be disruptive, will take real investment, and will demand changes of many participants in the payments value chain. But you are beginning to feel the “fierce urgency of now” in the US, and everyone involved in the payments value chain from community banks to big box merchants is going to need to be ready for the change.
The first step for any financial institution is to develop an approach to real-time payments that aligns with their overall business strategy. Where is the customer demand and where will faster payments make a material difference to the customer experience? If you are targeting students and millennials, you’d better have a great consumer P2P solution. If your focus is middle-market commercial clients, then merchant acquiring and supply chain integration could be priorities. In addition to prioritization, new services also need to be built for operational speed and efficiency, as faster payments will generate little or no fee income compared to traditional models. Finally, banks shouldn’t fall into the trap of seeing faster payments as just being about the immediate availability of funds. With a broader vision, banks can use faster payments to bring more innovative products and services to markets that make payments not only quicker, but also better.
We will look back at a time when it took days to move money between bank accounts as the payments dark ages. The enlightenment is already here in many countries—and markets like the US, where we are just at the dawn of faster payments, would do well to learn from those who have gone before to ensure that this transition is a positive one for both banks and their customers.
To find out more about hastening toward faster payments, read our report: A real-time revolution: Faster payments in the US