We are in the midst of a payments ecosystem renaissance.
There have never been more ways to send and receive money, and those ways available have never been more streamlined, secure, fast or convenient.
But that doesn’t mean that it is time now for payments players to rest on their laurels. Rather, the changing payments environment presents financial institutions with a host of various opportunities that can be leveraged to stay competitive and meet evolving customer needs.
Unpacking these opportunities involves examining the potential benefits of establishing new payments infrastructure and empowering stakeholders and disruptive FinTechs to build out new use cases atop modern architectures.
After years of traditional ways of transacting across traditional rails, the payments landscape is primed for a transformation.
After all, it wasn’t until 2013 that the Federal Reserve System’s “Payment System Improvement – Consultation Paper” was published, leading to 2015’s “Strategies for Improving the U.S. Payment System” white paper and a slew of groundbreaking innovations across payment technologies emphasizing speed, security and convenience in financial transactions.
And now, building infrastructure that supports innovation in the payments landscape is crucial for financial institutions to remain competitive, meet customer expectations, comply with regulations, and capitalize on emerging technologies.
By embracing these opportunities, institutions can position themselves as leaders in the evolving financial services sector.
Read more: Connectivity Defined the Past Decade — Interoperability Will Shape the Next
The advent of real-time payment systems allows for instant and 24/7 fund transfers. Financial institutions can capitalize on this by offering faster and more convenient services to customers, meeting their expectations for immediate transactions.
“A lot of instant payments is about moving toward this modern experience of being able to make a transaction and receive the money in real time, as one does with everything else in their life. But the issue is first we need the infrastructure,” Sean Kiewiet, chief strategy officer and co-founder of Priority Technology Holdings, told PYMNTS.
“There is the need for more developers and FinTechs to build apps and [push the ecosystem forward to] where we have a more ubiquitous experience for the end user,” he added.
As Plaid head of payments, Rahul Hampole, told PYMNTS, with the RTP® Network and the FedNow® Service gaining traction in 2023, companies are looking at ways to lower the barrier to entry for consumers by delivering incentives and new experiences that will encourage broader adoption. Use cases like bill pay and rental payments will likely see broad adoption, with eCommerce right behind.
Instant payments can significantly improve the overall customer experience by providing faster and more convenient transaction options. This is particularly important in an era where consumers expect seamless and rapid financial transactions.
“Using the RTP rail is going to allow financial institutions to innovate and allow the banks themselves to accommodate that innovation in a much better and a more scalable way. That’s the future … it’s about building capabilities to support new and emerging areas of interest for financial institutions,” Lee Alexander, executive vice president and CIO at The Clearing House (TCH) told PYMNTS.
Building new use cases allows financial institutions to tailor their services to specific customer needs. For instance, developing applications for peer-to-peer payments, splitting bills, or enabling automatic savings transfers can enhance customer engagement and satisfaction.
See also: What 17 Payments Experts Expect From Instant Payments in 2024 and Beyond
Financial institutions that invest in modern payments infrastructure position themselves as innovators in the industry. This can help attract new customers, retain existing ones, and differentiate the institution from competitors.
Building out new use cases also provides opportunities for diversification. Offering a wider range of financial services, such as integrated budgeting tools, loyalty programs, or value-added services, can attract a broader customer base.
The development of systems for the exchange, storage, and transfer of value (aka money) has been anything but static over time, and beyond just instant payment rails there are other opportunities ripe for innovation.
And innovation can even occur between both public and private sector players.
When it comes to things like central bank digital currencies (CBDCs), Daniel Field, global head of blockchain at UST, told PYMNTS, “The private sector should be providing the innovation in the form of new companies and products that leverage the capabilities of a CBDC system, and the public sector should be providing a stable, robust framework underneath it. … It’s unlimited what people can start building on top of the CBDC architecture and the products they integrate in once the ecosystem is established.”
At the end of the day, all payments infrastructures should evolve over time to what the ideal end-user is asking for.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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