A battle has been raging in the financial industry over the past several years as FinTechs grow more popular and begin to offer more banking products and services to customers of traditional banks and credit unions (CUs).
Almost two-thirds of consumers around the world have used at least one FinTech platform this year, compared to 33% in 2017. Consumers are drawn to these platforms for numerous reasons, but payment speed and convenience are especially important, with 90% saying they have used their smartphones to make mobile payments this year.
Many banks and CUs are working to implement their own real-time payment systems to compete with their digital-native counterparts more effectively, but this change is slow-going, and implementation rates vary wildly across financial institutions (FIs) of different types and sizes. The following Deep Dive explores the divergent real-time payments implementation among banks and CUs as well as the challenges they face in making real-time payments a reality.
How Banks Leverage Real-Time Payments
Real-time payments have become a critical priority for many banks in the face of growing customer demand. A survey found that real-time payments were the second-most important factor influencing businesses’ decisions when choosing a banking partner, with only banks’ ability to provide digital banking solutions ranking higher. Businesses’ desire for real-time payments stems from several factors, with 52% saying they needed more accurate cash flow, 46% looking to improve their accounts payable (AP) capabilities and 43% seeking to accelerate their payrolls. Eighty-one percent of businesses said that these payments will dramatically transform how they conduct their day-to-day business, and 66% believed that they would eventually supplant paper checks and cash entirely.
Consumer demand is also driving banks to adopt real-time payments, with 30% of consumers listing them as an important factor when picking an FI. Many FIs are lagging on implementation, however, with up to 40% of large accounts at big banks still lacking real-time payments capabilities. Some banks attribute this implementation gap to individual customers’ reservations about real-time payments, especially when it comes to disbursements. Many customers are still unaware of when such payments are preferable for a given transaction, with automated clearing house (ACH) transfers usually being suitable for nonurgent weekday payments, for example.
Simply offering real-time payments could help banks close their competitive gap with FinTechs, especially when it comes to corporate transactions. CUs generally do not cater to this large customer base, however, meaning they have their own factors to consider when it comes to offering real-time payments.
CUs and Real-Time Payments
CUs are decidedly member-focused, and they typically have more incentive to listen to the desires of their individual members than they do corporations. The most popular form of payment that CUs are currently exploring is digital wallets, with 67% of large CUs expanding these capabilities. Real-time payments are not far behind, however, with 58% of large CUs planning to implement them in some form in the future.
This implementation has slowed dramatically in recent months, however. Seventy-six percent of CUs reported developing real-time payment solutions in 2019, but just 10% said they were doing so in 2021. This follows a trend across all types of payments technology, as more and more FIs now have these systems and are not developing new ones. Mobile banking, for example, slowed down by half, while installment credit and peer-to-peer (P2P) payment investments also represent a fraction of what they did in previous years.
CUs are beginning to build customer loyalty through direct rewards rather than added services. Just 27% of CUs invested in loyalty and rewards programs in 2020, but 98% are doing so now, for example. Other areas of interest include customized products, digital security and budgeting tools.
Sidelining real-time payments innovation could very well backfire for CUs as banks and FinTechs surge forward with RTP® network implementation, however. With the economy improving and businesses and individuals beginning to transact more than ever before, customers will be looking for ways to make payments as seamless and speedy as possible. FIs that fail to offer these real-time payment services could very well be left in the dust.