There are exciting times for RTP. But to realize its full potential, banks must look at the bigger picture.
There’s no doubt that the Federal Reserve’s recent announcement of its “FedNow” real-time payments (RTP) service—slated for launch in 2023 or 2024—has turned up the excitement around RTP another notch. However, as banks across the US build their RTP volumes or plan out their modernization strategies for the RTP world, it’s important to appreciate that there’s a much bigger strategic and competitive agenda at play.
Why do I say this? Let me begin my explanation with a look at the current US landscape for immediate payments, dominated—of course—by The Clearing House’s (TCH’s) RTP infrastructure.
Currently RTP is seeing headlong growth, with about 25 US banks already live or going live and transaction volumes now above 2 million and counting. Against this background, the widely-held view—including by TCH—is that the FedNow announcement has further vindicated the importance of RTP, spurring interest and adding fuel to the market.
The result? Banks that were previously sitting on the fence mulling over open questions—is RTP viable or even relevant for a bank of our size?—are now more likely to take the plunge. And this influx should see the current ~ 55% of customers’ DDA accounts with RTP access rise by another 10% or 20%, bringing true critical mass.
So, it’s an exciting time for RTP in the US. But not just because of the FedNow announcement, as an array of forces combine to drive it forward.
One is the rising expectation and demand among customers for new experiences and services that capitalize on RTP. Another is the advances in payments technology and standards that are transforming banks’ ability to create and deliver new solutions: advances like the growing adoption of ISO20022, the rise of open banking enabled by application programming interfaces (APIs), and increasing use of cloud platforms allowing cost savings and easier integration with new partners.
A cross-border future
Together, all of these factors bode well for the future of RTP in the US. And they’re also mirrored—to varying degrees—in other countries worldwide, with the move to instant payments now reaching most major markets across Europe and North and South America.
However, all the schemes currently out there are currently in-country. So, the next wave of innovation will be to take RTP cross-border by linking the national schemes together. Not surprisingly, this is an area where Finastra is already active, including collaborating to build a bridge between the RTP schemes of the US and UK.
Not a choice—but a competitive imperative
So, what does all this mean for US banks—especially those yet to embrace RTP? Even post the FedNow announcement, RTP remains a voluntary choice for US banks, not a regulatory requirement (as it is in many other countries). But in my view, it isn’t really a choice at all. As RTP gains ever greater reach and volumes, choosing not to participate will put any bank at a severe competitive disadvantage, and see it become increasingly irrelevant to customers’ needs and expectations.
What’s more, early adopters will have a clear head-start in launching new RTP-enabled customer solutions and use cases —from bill-pay to request-to-pay to peer-to-peer to business-to-business—leaving the laggards struggling to catch up. So, the first-movers will grab the lion’s share of the value, and the traditional fast-follower “wait-and-see” approach raises huge risks.
A holistic view
In fact, the key here is to view RTP holistically as just one pillar—albeit a vital one—in an entirely new payments architecture. By taking RTP and layering it on a cloud-based open-platform approach, including the ability to expose metadata to drive microservices and enable API integration, banks can take their value proposition to customers to the next level. One that banks yet to modernize their systems to embrace RTP can only dream of.
Many banks across the US have already grasped this reality and are responding in different ways. Some are taking a pragmatic approach, doing the basic minimum to layer on RTP without radical modernization of their legacy systems. Others are more forward-thinking, moving to open architectures that enable them to leverage data through AI, analytics and predictive models to create new digital journeys for customers, and provide them with unprecedented insights into their finances.
Speed, integration—and experience
It’s this latter group that stand to win out. And their competitive edge is being further sharpened by the changing nature of technology development in an open platform world—with the monolithic 18-month software implementation projects of the past having given way to the instant exposure of microservices via an integration layer, slashing the development time for new customer solutions from months to weeks while vastly reducing cost and risk.
Also, further out, open platforms and RTP will enable banks to improve customers’ experiences still further, by bridging use cases and solutions that are currently cobbled together across product silos. So, a transaction that creates a need for borrowing or lending won’t involve a series of hand-offs between un-interoperable systems but will occur as an integrated flow end-to-end—benefiting speed, cost and customer satisfaction.
Mapping out the journey
For banks, the message for is clear. As the US’s future RTP landscape continues to take shape, the question isn’t which rails to adopt. It’s what destination the bank wants to get to—hand-in-hand with its existing and new customers—on its digital journey. So, banks should look at where they are today, what their digital end-state is, and map out their path to meet the demands of tomorrow. If that path doesn’t involve RTP and open platforms, I’d be very surprised.
It’s a journey that Finastra is already helping many banks across the US to undertake. We can help your bank do it too. To find out how, you only have to ask!