As faster payments solutions aim to offer financial institutions and banks a quicker means of exchanging money, a potential roadblock awaits their successful adoption. Namely, are banks ready to take the risk?
Not so much, said Richard McShirley, CMO of linked2pay, a provider of cloud-based payment solutions. PYMNTS recently spoke with McShirley to discuss the impediments in onboarding banks for adoption of faster payment solutions. To begin with, McShirley said, banks need to shed their long-held attitudes about taking risks on new products and ideas.
Getting to know the merchants
While providing a smoother and faster payment experience to customers through initiatives like Same Day ACH generates interest among merchants, their adoption is often difficult. McShirley pointed out that banks can be reluctant to offer faster payments solution if the client comes from a vertical that the banks view with caution.
“Every time there’s an innovation that comes out, there has to be great care in the way it’s doled out,” said McShirley. “Even with the best technologies, banks are still risk-averse by nature.”
As for faster payments, banks first want to fully understand the risk they are taking with a particular merchant before they invest in extending new offerings, McShirley said.
“Faster payments really start by knowing who that person is who wants those faster payments,” he added.
That’s where a bank’s enhanced due diligence protocols come into place. McShirley pointed out that linked2pay offers a bank platform with a built-in registration for merchants that helps banks review the compliance, security and fraud aspects to help institutions construct a profile of potential new clients and better understand their risks.
In November, linked2pay collaborated with Push Payments to add real-time payments to its Bank Centric Payments platform. The move allows financial institutions to offer real-time and Same Day ACH payments as a white-label solution and gives merchants more control over the speed of a payment’s delivery.
“That makes it so the bank knows what they need to know about the merchant to the extent where they can issue those services in a faster, more compliant manner,” he said.
While banks and other financial institutions are still becoming accustomed to faster payment solutions, McShirley said the push to adopt these solutions is under way.
“I think [faster payments have] found some of the pathways for its future,” he said.
Leveling the playing field
McShirley believes banks should move forward with adoption at a rate they’re comfortable with. But he cautioned that institutions that take too long to offer faster payment solutions risk getting left behind and alienated by merchants.
“The savvy banker out there is going to look at this and say, ‘We need to be digital. We need to be in payments, or we’re not relevant,’” said McShirley.
He believes that, by incorporating a built-in risk management mechanism into its banking platform, linked2pay is leveling the playing field by offering smaller banks a chance to stay competitive with their larger counterparts.
McShirley also believes the banking platform offers benefits for both sides of the banking relationship. Built-in risk management services allow banks to build their own profiles of what type of risk certain merchants carry. It also offers consolidated services for merchants so that they don’t have to reapply when they want to add a new type of service, such as Same Day ACH or real-time payments.
“Everybody’s in the loop because it’s a single, relational database serving the bank, serving the reseller, the merchant and the customer all at the same time,” he said.
This consolidation of services in the banking platform can provide smaller banks with an incentive to offer faster payments. In addition to being able to create their own risk management profiles, the banks also get the added benefit of adding additional payment solutions without being forced to invest in new staff.
“Banks can scale up without bringing in a bigger back office,” he said. “The back office they have right now doesn’t need to be increased for their revenue to be increased.”
A bridge to disruption
At the end of the day, McShirley believes banks must proceed with the adoption of faster payment systems based on their own comfort level. He said linked2pay sees its solutions as less about being disruptive and more about offering banks a “stepping stone” to the next level of FinTech they want to pursue.
“I’m definitely not for the status quo,” said McShirley. “I’m for making it so there’s a bridge for the status quo to meet the disruptor level.”
But there shouldn’t be a rush to cross that bridge as fast as possible, he said. Instead, institutions interested in faster payment solutions should find a “pathway to the future” that works best for them.
In time, he believes more community banks will gain confidence in offering faster payment solutions as more early adopters demonstrate success.
“I think it’s going to be reached relatively soon because there’s a lot of pressure on community banks to manage their reputations,” said McShirley. “My hope is the early adopters get the experience and results they were hoping for.”
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The PYMNTS Faster Payments Tracker™, powered by NACHA, is your go-to resource for staying up to date on a month-by-month basis. The Tracker highlights the contribution of different stakeholders, including institutions and technology coming together to make this happen.
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