Among the value propositions for real-time processing is to improve liquidity while reducing transactional overhead.
Yet for many entities, the concept of implementing real-time processing across an entire system can feel overwhelming complex.
As real-time payment infrastructure grows more sophisticated, technology presents an opportunity for organizations to mitigate the adoption hurdle. According to Ramón Villarreal, global architect, financial services at Red Hat, the value in real-time payments can significantly outweigh any challenges faced in the adoption process.
"The real challenges are around getting the right skills and setting the organization up to adopt a culture of change," said Villarreal. "That's where the true complexity is."
Becoming More Adaptive
Organizations like banks are notoriously averse to change, and that's a difficult form of inertia to overcome. When it comes to changes to payment processes, it's not the technology that's holding entities back, it's the friction of adjusting to new ways of working.
"The main complexity of real-time payments is around changes in business processes," explained Villarreal. "Changing the way human interactions are made and changing behaviors in terms of how liquidity is managed."
Cloud technology has been able to ease some of this friction, thanks to built-in automation and simplified connectivity across the back office. While corporate treasurers will be faced with a new paradigm for managing cash, the improved clearing and settlement can lessen the burden of manual intervention and accelerate the realization of the value of real-time payment adoption.
Real-time transacting offers dual-sided benefits to merchants and consumers alike, as Villarreal noted. In the context of the global pandemic, organizations have gained an opportunity to elevate that value even further — both for themselves and their customers.
Businesses in lockdown are finding that real-time payments can support the need to move money and execute payments quickly from a remote working environment, he said, while for customers, merchants' acceptance of faster payment methods supports demand for touchless and online transacting.
From a cash flow perspective, the ability to reallocate funds in real time, or to support payment processing that is faster and more affordable than other payment methods like cards, is vital to the financial health of firms amid economic uncertainty. And at the broader level, as the current market climate drives further adoption of digital payments, growing adoption of real-time transacting is contributing to the modernization of a cashless, resilient economy.
Yet, according to Villarreal, one of the largest value propositions of real-time transactions goes beyond the movement of money.
Standardization of payments messaging and enriched data, along with the immediacy of funds, has enabled real-time payments infrastructure to introduce greater value to organizations in areas like financial crime prevention and payment reconciliation. Going further, this data also introduces the opportunity for organizations to innovate with new services.
"It's not only about implementing the ability to transact and deliver money faster," said Villarreal. "The real promise of real-time payments is when you start to reuse that extra data to create aggregated functionalities."
The opportunity to wield richer transaction data in real time has become a key focus for governments, central banks and financial service providers as they press forward in their real-time payment initiatives.
In the U.S., adoption remains muted compared to other markets like the U.K. Yet the addition of the Federal Reserve's FedNow service, which will coexist with The Clearing House's RTP Network, could introduce the variability the market needs to achieve ubiquity.
Together, the entities "increase the permeability of real-time payments by offering new capabilities depending on the specific type of transaction," said Villarreal.
He pointed to the U.K.'s real-time payments ecosystem, in which the Faster Payments Service (FPS) tends to facilitate real-time consumer transactions, while CHAPS has been more beneficial for higher-value, real-time settlements in contexts like B2B payments.
The entrance of the FedNow service will also lower barriers for financial institutions (FIs) to loop into real-time payment capabilities directly, a benefit that will be particularly impactful for smaller banks and credit unions that have historically relied on third parties to access such payment networks.
As real-time transacting proliferates in the U.S., organizations will continue to see adoption barriers come down, thanks to technological innovation and FIs' expanded offerings. But for entities to truly obtain the value of real-time payments, they must first overcome a resistance to change.
"For the organizations that will be transacting in a real-time environment, it's about adapting how they're implementing a sophisticated cash management capability, and introducing transactional capabilities to improve and adapt," said Villarreal.