As innovations in finance continue to barrel toward 2020, faster (real-time) payments seem closer than ever to becoming reality in the U.S. So, how should banks prepare for what looks like an inevitable change?
In a recent survey, London, U.K.- headquartered Ovum discovered that 65 percent of banks feel their payment infrastructures will need significant renovation in the next three years (14 percent see this occurring next year). Whether due to compliance requirements, drive efficiencies or competition, those that fail to move forward on faster payments risk falling behind the rest of the market.
Moreover, payments are moving away from a back-office function and into more strategic areas of the bank, and bank executives are increasingly recognizing the need to improve customer service in the payments space. The vast majority of those surveyed (88 percent) reported it is more of a challenge to win and retain new client business than it was a year ago.
“Real-time payments are not simply seen as an additional rail but as the way in which the bulk of domestic and cross-border payments will move in the near future,” Ovum’s Making the Business Case for Payment Transformation report reads. “Moving to capitalize on the opportunities this will present and avoid being left behind is therefore a clear priority.”
However, within these new expectations lie possibilities for better customer engagement and satisfaction and new revenue streams.
“Delivering payments capability as a series of services will provide new channel opportunities and help power open banking and wholesale initiatives,” Leigh Mahoney, head of wholesale digital for ANZ based in Melbourne, Australia, told Ovum. “Microservices will allow the creation of new ‘curated’ services and have the potential to create new products currently not in existence.”
“The move from seeing payments as simply a utility to seeing them function as a profit center has moved the focus from operational to strategic,” Ovum’s report states. “This, coupled with the central role of payments in support of end-to-end digitalization, means the business case [for preparing for faster payments] should theoretically stand up on its own, but theories are not enough to get approval; the ROI model is still dominant.”
When developing a business plan for supporting faster payments, Ovum suggests flexibility in the cost and benefit models underpinning an investment pitch. A business case framework that can scale up and down allows all stakeholders to evaluate the potential outcomes under different scenarios and consider what inputs will affect those outcomes, the report advises.