Not with a bang, but with a whimper: That’s how Gene Neyer, chief strategy officer at Icon Solutions and this week’s Commander in Chief, says real-time payments technology will overtake the industry. Such major shifts, he said, don’t happen dramatically. Rome wasn’t built in a day, and neither will the new real-time payments empire come to fruition overnight.
“What we’re finding is that existing business processes don’t change,” Neyer said. “In the U.K., for instance, the reason wire transfers haven’t been cannibalized is that corporates are either making too few wires for it to be worthwhile to change the business process, or they’re making enough so they could negotiate good discounts with the wire transfer providers, so why would they change that?”
Still, change is upon the industry, Neyer said, and transformation is inevitable. Today, with the option to develop a reliable real-time system, why would industry players settle for anything less? Going forward, real time will be the new status quo, Neyer pointed out – and consumers are already expecting it.
Here’s how he says organizations can prepare and adapt – and why it’s in their best interest to do so.
When it comes to bill payments – both on the consumer side and on the corporate side with accounts payable and receivable – Neyer said real-time payments open up new opportunities.
Consumers and banks have an opportunity to simplify and pay all of their bills from a single window – preferably the bank’s window rather than a third-party aggregator, he noted. Bills could be paid in real time from that window, whenever the customer needs to pay them – even if they’re having Saturday morning brunch or watching Sunday night football when they remember to do it.
There is a trend of people wanting to pay with a combination of funds in their account and reward or loyalty points earned for using their credit cards. Neyer said that the loyalty associated with cards will migrate toward the account, as is now beginning to happen in Australia. He predicts a not-far-off world in which people will be able to use their airline points to pay bills.
In the gig economy, workers want to be paid at the end of the day for hours they’ve already worked, not wait days or even weeks for the big paycheck to hit their account. As this capability becomes commonplace, Neyer said thinking about cash management will inevitably change based on the instant availability of funds earned.
Finally, on the corporate side, Neyer said organizations want to receive payments as early as possible but send them as late as possible. Corporates had to keep capital on hand because funds were often trapped in transit. That resulted in the introduction of discounts for earlier payments.
Real-time payments, naturally, will eliminate that delay so that funds are where they need to be when they’re needed, Neyer said.
What’s Next in Real-Time Payments
Domestically, said Neyer, real-time payments have seen good penetration in terms of replacing cash and in eCommerce and mobile commerce – but they have yet to make significant inroads at the point of sale (POS), which Neyer sees as the next frontier.
He added that this transition isn’t just happening in real-time payments, but also with wires: there’s discussion of creating regional wire platforms to drive economies of scale.
“As people get used to saying, ‘Alexa, I want to make a payment,’ they’ll no longer want to hear, ‘Your payment has been scheduled,’” Neyer said. “They want to hear, ‘Fred has your money’ or ‘The bill has been paid.’ That’s why Alexa must be connected to real-time payments.”
Neyer expects large volumes of machine-to-machine payments to move through the IoT – which, unlike ACH and wire systems, was designed in a way that can support massive payment volumes in real time.
He said advances in AI will underpin all of the above by helping Alexa better understand users, helping organizations make better decisions about how to deploy tech, and helping to identify fraudsters who may be socially engineering or otherwise weaseling their way into payments that don’t belong to them.
There are two types of clients: Those with light legacy infrastructure investments, for whom integrating and implementing technology like Icon’s is a contained and straightforward project, and those with heavy investments in such infrastructure – like most traditional, large financial institutions, for example.
In the latter case, said Neyer, many of these organizations are in the process of re-architecting themselves, and implementing Icon or a similar technology is simply a part of that much larger project. When that’s the case, he said, it becomes necessary to plan how the organization will migrate from batch to real-time processing, how it will re-skill its workforce, and how it will put the appropriate governance in place.
Daunting as that may seem, Neyer said Icon recommends it for organizations that still rely on a lot of legacy infrastructure. It’s a challenge, yes – but it’s also an opportunity.
Neyer said it benefits banks and their customers to move up to the latest technologies and standards and retire obsolete ones. Standards for ISO, ACH and real-time payments have largely converged, he said, but the same cannot be said for processing standards, and it is time to address that.