While financial institutions readily see the benefits and client demand for real-time payments, many see challenges in implementing such a program. And it’s not just large, household-named banks that see the challenge; smaller lending institutions and credit unions wonder how faster payments fits in their current business models.
So says Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group. Grotta was a co-speaker on a Payments Journal podcast entitled, “A 5-Step Plan for Adopting Real Time Payments.”
Before guest speaker Peter Gordon, chief revenue officer of PayFi, a provider of payments platform APIs, offered his five-step plan, Grotta delivered a sharp overview of the current landscape. It’s a “very interesting time for banks to be in real-time payments,” thanks to recent RTP network advances, she said.
“The introduction of The Clearing House RTP is that [there is] a true real-time solution where transaction and data are exchanged and settled within seconds,” she said.
Despite these advances, some banks are adopting a wait-and-see approach following reports that the Fed may enter the space. “We are in a bit of a holding pattern in terms of the Federal Reserve and what decisions they’re going to make about their participation, or non-participation, in the faster payments industry,” she said.
“The financial institutions and consumers like the benefits of real-time payments. They like to see the data, information and the clarity around the transactions but [despite] those benefits, a lot of FIs are struggling a little bit to understand how real-time payments fit into their overall strategy.”
She adds, “One of the more difficult things FIs struggle with is the business case and business model around real-time payments.”
Understanding the value of transactions on the RTP network is the first step for adopting the new payments platform, said Gordon.
“Any new product must start with an analysis of ROI. This tends to be a ‘black box‘ for commercial lenders, but FIs must outline the associated costs and the revenue realized by looking at their commercial market and analyzing potential gains from using real-time payments in comparison to traditional rails,” he said.
FI’s must understand the value of the RTP network that allows for the transfer of both messages and money, which other rails cannot accomplish. “They then must locate an RTP payment processor, and hire the necessary staff such as an underwriter for onboarding, an AML analyst for network support, and salespersons,” he said.
To hear more of Gordon’s Five Steps for Adopting Real-Time Payments, listen to the 25-minute Payments Journal podcast.