Develop real-time payment capabilities |

A battle has raged in the financial industry in recent years as FinTechs become 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 worldwide have used at least one FinTech platform this year, up from 33% in 2017. Consumers are drawn to these platforms for many reasons, but payment speed and convenience is particularly important, with 90% saying they have used their smartphones to make mobile payments This year.

Many banks and UCs are struggling to implement their own real-time payment systems to more effectively compete with their digital-native counterparts, but this change is slow and implementation rates vary widely among financial institutions (FIs). ) of different types and sizes. . The following Deep Dive explores the divergent implementation of real-time payments among banks and UCs and the challenges they face in making real-time payments a reality.

How banks are leveraging real-time payments

Real-time payments have become a top priority for many banks in the face of growing customer demand. An investigation revealed that real-time payments were the second most important factor influencing business decisions when choosing a banking partner, with only the ability of banks to deliver digital banking solutions ranking higher. Businesses’ desire for real-time payments stems from several factors, with 52% saying they need more accurate cash flow, 46% looking to improve their Accounts Payable (AP) capabilities, and 43% looking to improve their accounts payable (AP) capabilities. speed up their pay. Eighty-one percent of businesses said these payments would radically transform the way they conduct their day-to-day operations, and 66% believed they would eventually supplant paper checks and cash entirely.

Consumer demand is also pushing banks to embrace real-time payments, with 30% of consumers citing them as an important factor when choosing an FI. However, many FIs are lagging behind in implementation, with up to 40% of large accounts in large banks still lacking real-time payment capabilities. Some banks attribute this implementation gap to individual customer reservations about real-time payments, especially when it comes to disbursements. Many customers are still unsure of when such payments are preferable for a given transaction, with Automated Clearing House (ACH) transfers generally being suitable for non-urgent weekday payments, for example.

Simply offering real-time payments could help banks close their competitive gap with FinTechs, especially when it comes to business transactions. However, UCs usually don’t cater to this large customer base, which means they have their own factors to consider when it comes to offering real-time payments.

UC and real-time payments

CUs are strongly member-driven and tend to listen to the wishes of their individual members more than corporations. The most popular form of payment that UCs are currently exploring are digital wallets, with 67% of large UCs expanding these capabilities. However, real-time payments aren’t far behind, with 58% of large CUs planning to implement them in some form or another in the future.

However, this implementation has slowed down considerably in recent months. Seventy-six percent of UC said they developed real-time payment solutions in 2019, but only 10% said they did so in 2021. This follows a trend in all types of payment technologies, as more FIs now have these systems and not develop new ones. Mobile banking, for example, has slowed by half, while installment credit and peer-to-peer (P2P) payment investments are also a fraction of what they’ve done in previous years.

UCs are starting to build customer loyalty through direct rewards rather than additional services. Only 27% of CUs invested in loyalty and rewards programs in 2020, but 98% are doing it now, for example. Other areas of interest include custom products, digital security, and budgeting tools.

However, the sidelining of real-time payments innovation could very well backfire on UC as banks and FinTechs move forward with the implementation of the RTP® network. As the economy improves and businesses and individuals begin to transact more than ever before, customers will be looking for ways to make payments as smooth and fast as possible. FIs that do not offer these real-time payment services could very well be left behind.

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About Matthew R. Dailey

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