Faster payments are only one example of the effects of a world moving toward real-time everything, with growing customer demands driving change in the way banks and businesses operate themselves.
As such, the consequences of real-time payments aren’t solely impacting consumers’ peer-to-peer (P2P) transaction activity. Indeed, services like Zelle and The Clearing House's RTP are impacting, both directly and residually, financial processes of banks, small- to medium-sized businesses (SMBs) and larger corporates, although each in very different ways.
In a recent conversation with PYMNTS, FirstBank CEO Jim Reuter explored some of the nuances of real-time payments’ broader impact on the worlds of banking and business.
For banks, among the most immediate impacts is in how financial service providers establish their strategy for meeting the customer where they want to be to drive client satisfaction. In recent decades, that used to mean opening more bank branches or locations in grocery stores.
But with customers demanding immediate, online access to banking products and services, the customer satisfaction strategy has shifted in a big way toward online account opening functionality and faster money movement services.
“Making an account the most convenient used to mean physically more convenient,” said Reuter. “Then it turned to money movement, and now, digital is most convenient.”
Beyond offering end-users faster products and services, though, Reuter noted that banks’ own internal systems are also finding their footing in a world that continues to shift toward real time.
How APIs Support Banks’ Real-Time Processes
In a recent announcement, FirstBank revealed its adoption of core infrastructure technology provided by Finxact, a tie-up Reuter said was certainly rooted in the bank’s efforts to modernize its infrastructure.
More specifically, he pointed to FirstBank’s interest in migrating from batch processing toward real-time processing as a key motivation behind the core overhaul and one of the biggest ways customers’ real-time payments drive has banks rethinking their own operations.
“There are still going to be elements where you’ll want to stop for the day and reconcile, but that’s not what customers want,” he said. “They want things to work in real time, and banks have done a good job with things like available balances. For a lot of customers, that feels close to real time, but for those of us who know how it works behind the scenes, it’s really a veneer over a system that needs to be modernized for real-time work.”
The real-time push is also adding greater weight to the concept of open banking and application programming interface (API)-powered data sharing capabilities, which can not only enable banks to accelerate product deployment with services that meet customers’ real-time needs, but also allow financial institution to aggregate and wield customer data in real time for their own internal processes.
This is essential even if banks choose to turn to third-party FinTechs to deploy new products rather than develop them in-house, said Reuter. After all, in either scenario, the bank remains the central hub for customer data.
“Those partnerships still rely on the bank behind the scenes to process transactions, calculate interest earned that needs to be paid, and all of that happening in a batch world is not going to be what works long-term,” he said.
Businesses Dive Into Real-Time Data
As banks adjust their internal operations to meet a world moving toward real time, they’re also finding opportunities to promote the benefits of speed and modernization for their SMBs and corporate clients.
The benefits of real time, however, look very different for businesses.
For SMBs, Reuter noted that business owners’ use of real-time payment tools in their personal lives will inevitably bleed into what they expect to be able to do as they run their companies. And while a SMBs might adopt a tool like Zelle or RTP for the sake of meeting their consumers’ payment needs, Reuter said SMBs find significant value in key features like Request For Payment to be able to streamline receivables and obtain a holistic view of incoming cash flows.
The value proposition of real-time payments for larger enterprises is less immediate, although no less disruptive.
Like financial institutions, for corporate treasurers one of the biggest benefits of faster payment capabilities like The Clearing House’s RTP is in data, and corporates’ ability to make use of that information in real time.
“They’d like to have RTP capabilities, and they’re most interested in the additional data,” explained Reuter, who pointed to one example of a title company that is interested in wielding RTP to close real estate transactions rather than relying on wire transfers, with RTP more equipped to handle the high volume of complex data related to deeds of trust. “Today, we put that information in bank-to-bank wire instructions. It works OK, but it’s not nearly as slick as it will be with the RTP network.”
Larger enterprises will be the “long tail” of real-time payments adoption, however, with corporates operating on lengthier upgrade schedules. Still, the potential to take advantage of data in real time can support organizations’ participation in a real-time economy, whether the business is large or small.
Again, Reuter highlighted the opportunity for open banking frameworks and data sharing via API to facilitate access to data in real time without compromising the trust or security of customers and their information. For businesses and banks alike, the value largely stems around data analytics and customer satisfaction, and as real-time payments proliferate, so will the opportunities for stakeholders beyond the consumer to benefit.