Keith Riddle
AS THE CLEARING HOUSE’S RTP (Real-Time Payments) platform rolls out across the United States, the conversations within the market have shifted beyond the technical mechanics of messaging, speed of payment, and settlement and to a series of fundamental business questions:
• How can a real-time payment framework enable my financial institution to transform the customer/member experiences?
• How will a new payment framework allow our internal teams to develop and introduce innovative financial services to enhance or dramatically change the level of customer/member engagement?
• What are the opportunities a real-time payments framework can present to our local business partners or the community as a whole?
• How can we leverage the opportunity associated with the real-time information exchange to create relevant conversations with our customers/members?
• What are the competitive aspects our team needs to account for and outline as part of the planning process and digital transformation strategy?
As a provider of correspondent, investment, and digital services to nearly 800 credit unions across the country, Corporate One and its wholly owned credit union service organization dedicated to digital transformation have actively monitored the developments of RTP over the last three years. During this period, we have provided dozens of executive briefings and educational sessions related to RTP and our customers are now seeking guidance to the questions noted above. As part of that guidance, we have provided numerous examples to reinforce the impact that faster payments will have within the global financial services arena, including the following stats outlined in the PYMNTS.com October 2018 Faster Payments Tracker:
• Expected value of faster payments in the U.S. by end of 2018: $255 billion.
• Share of executives who expect real-time payments to improve liquidity planning, forecasting, and cash investment efforts: 87%.
• Total members in the Faster Payments Playbook initiative: 60.
The shift to real-time payment data exchange and settlement has started in other countries, including the U.K. and Australia, and the U.S. is positioned to adopt the first dynamic payment solution innovation in 40 years. The challenge will create significant opportunities, along with a series of challenges that must be addressed. The integration of RTP functionality into legacy back-end platforms as well as digital experiences will be analyzed closely by each financial institution.
We anticipate a new category of service providers will emerge to offer streamlined connectivity to RTP. Regardless of how a bank ultimately will access RTP, we have encountered a demand for guidance and supporting material to understand why RTP is important to create long-term relevance. This article offers a perspective of the competitive forces from FinTech providers driving open connectivity via application programming interfaces (APIs), and why the enablement of relevant real-time experiences through the RTP Network will be imperative to create a path to digital leadership, user engagement, and enhanced profitability.
THE COMPETITIVE LANDSCAPE
The surge of FinTech providers has created significant disruption which will continue to accelerate as younger customers deepen their use of alternative solutions providers such as PayPal, Venmo, Square Cash, Acorns, Robinhood, and SoFi. The expansion of fundamental transactional services by the FinTechs focused on the recurring aspects of payments is also accelerating. According to a recent article published by CBInsights, 60% of younger clients are willing to try a new financial product from a FinTech provider they already use. In the coveted emerging consumer segment of 18- to 34-year-olds, that number rises to 73%.
Additionally, a 2017 study by the Boston Fed noted consumers age 18+ generate an average of 70 payments per month, with 32% via debit cards, 27% by cash, and 23% on credit cards. The long-term success for the FinTech offerings noted above will be the ability to transition the digital payment activity, which is primarily a person-to-person (P2P) transaction, into a sustainable financial services relationship where the debit card becomes the fundamental tool for managing a consumer’s payment needs.
The FinTech providers currently leverage a payments rail that has been in existence for decades, the debit card rail, to create the appearance of a near-real-time data movement function for transaction requests, with a bank being responsible for the management of ongoing settlement, network management, and back-end operational management functions. Although the existing payments rail provides the assurance of ubiquity, the standard Automated Clearing House (ACH) message format is different from RTP in two ways: the debit rail does not support the enriched data needed to enable a conversational banking framework afforded through the RTP Request for Payment (RFP) or Request for Information (RFI) messages, and the standard debit rail does not support the real-time reconciliation and settlement of standard P2P transactions or more complex transactions types (business to business, business to consumer) because the settlement process typically occurs through an ACH batch exchange.
The FinTech community is also seeking access to a platform leveraging API functionality. The API services exposed by FinTech providers, financial institutions, and platform providers such as The Clearing House (TCH), will create an opportunity for all parties to securely integrate unique experiences into the core products and processes. According to a recent study issued by Oracle, “Banking at the Crossroads,” 44% of those institutions listed as digital leaders plan to follow an approach of integrating FinTech solutions into their core processes and solutions. Within the same study, digital leaders are noted to have a 16% improvement in market share over digital laggards. APIs will continue to transform access to legacy platforms. According to data from Programmable Web, an organization that maintains an API directory with over 20,500 APIs, there has been a significant surge in new FinTech APIs since 2017. For the period 2014–2017, there was an increase of 90% for financial APIs and a 51% increase for payment APIs. Open banking developments in the U.S. will drive future increases in API access, as will the need for infusing real-time experiences and payment functionality within the API offering.
RELEVANT EXPERIENCES AND INTELLIGENT RESPONSIVE ARCHITECTURE
Convenience and speed are the key attributes redefining the customer/member experience, and financial institutions must respond with responsive and intelligent architectures designed for real-time data analytics and conversations that are relevant to the consumer. Within a study issued by Accenture, which surveyed over 23,000 consumers representing 33 countries and eight industries, 64% of the instances when customers switch from one brand to another are driven by the lack of relevance, and 68% say that if a company is perceived as relevant by its customers, it is more likely to be recommended to friends and family.
The demand for relevant digital experiences, including real-time payments, has never been stronger. ACI Worldwide noted that 30% of the consumers surveyed as part of a real-time payments study said that they would potentially switch to another financial institution if their current financial institution did not offer access to real-time payments, another example of the impact of delivering relevant experiences. As noted above, the value of relevance is not limited to the speed of the payment but includes how the data can be used to analyze customer/member behavior and deliver contextual financial services experiences. Those experiences can span several points in the customer/member journey, such as a new account opening session, receiving the disbursement of a loan, enabling more efficient delivery of payments to preferred partners, establishing a conversational relationship with a customer/member for payment obligations, and automated responses to requests for information related to payments that may have been submitted.
The possibilities are endless if a financial institution has a digital services architecture built for speed and responsiveness. To achieve the aspect of relevance noted above, financial institutions will seek out open platforms developed for real-time engagement, including modern architecture such as microservices that can isolate and orchestrate several complex data management and integration functions. In that example, RTP functionality would be embedded within a microservice designed for real-time payment enablement. With the advent of open APIs and microservices technology, financial institutions have tools at their disposal to become increasingly innovative in designing and developing real-time experiences.
KEY TAKEAWAYS: DESIGNING A PATH
TO ACTION
When discussing the emerging trends of real-time payments, experience development, APIs, microservices, and FinTech competition, the financial institution often replies with a pragmatic “where do we start?” In our opinion, financial institutions can establish a very practical set of steps as a foundation for their RTP journey:
• Evaluate the existing digital and legacy systems for faster/RTP readiness.
• Review the current level of FinTech disruption through ACH transaction logs.
• Identify the critical customer/member journeys that could be enhanced with RTP functionality.
• Discuss new product and service enhancements and innovations where RTP can be a component of the offering.
• Outline a plan for leveraging the real-time data exchange available through RTP to complement the enterprise data analytics strategy.
• Continue to monitor RTP educational opportunities available from TCH and other resources.
By following the plan of action, your institution can begin to establish a comprehensive plan for enabling real-time experiences and payments that can create competitive differentiation, enhance retention, and increase profitability.
