Real-time payments adoption has become widespread, and as a result, financial services companies need to be better equipped to overcome any operational challenges that may come up.
During a recent PaymentsJournal podcast, Reed Luhtanen, Executive Director of the U.S. Faster Payments Council, Tony Cook, EVP of Payment Operations & Real-Time Payments at FirstBank, and Cheryl Fitzgarrald, Program Director at BHMI, delve into what is needed to get an organization up and ready to support real-time payments.
Current State of Real-Time Payments
Payments have undergone a massive shift in just a few years, with real-time, remote, and digital forms of payments becoming the norm. “Lots of folks are getting engaged through the Fed, The Clearing House, and the Faster Payments Council to learn about what faster payments are and how it might affect them,” said Luhtanen.
“We recently conducted a Faster Payments Barometer survey and about 90% of our respondents said that they are either in the process of implementing [real-time payments], they’ve already implemented, or they’ll be implementing in the next two years.”
According to Luhtanen, businesses are looking to leverage this new technology for payroll, funding loans in real-time, and to pay bills.
The main benefit of real-time payments, according to Cook, is to get funds into customers’ hands faster. “At FirstBank, we’re starting with the ability to receive real-time payments only, but we see enormous benefit just from starting at that point alone.”
“If you think about all the great opportunities, especially in areas like payroll or the gig economy—as well as the ability to defund wallets—we’re excited about the opportunities there and for our customers to get paid faster. Some of the other core benefits that we get really excited about is just the overall 24/7 availability,” he said.
“Most of BHMI’s clients are large processors and financial institutions that are processing on behalf of banks, credit unions, and merchants, said Fitzgarrald. “Over the last five years, we have seen the use of real-time payments grow dramatically. Our clients are offering a wide range of new real-time payment services to their retail, business, and corporate customers. This has ranged from simple account-to-account payments to more complex business payments.”
With Opportunities Come Challenges
With any introduction to a new technological advancement, there will be inevitable kinks that will need to be ironed out. While there will always be early adopters eager to try out the latest innovation right around the corner, bad actors will be nearby, just as eager.
“Anytime a new payment technology comes about, some of the earliest adopters are going to be the folks who are going to try to steal money from other people,” Luhtanen said. “There’s going to be a lot of work to be done to figure out where the best lines of defense are, where the layers need to be put into place. Working collaboratively is going to be critical on that front.”
So, what are the steps that financial institutions can take to ensure they can implement real-time payments effectively? It all depends on where your organization currently stands.
In terms of the operational changes that FirstBank has implemented to support its foray into real-time payments, Cook said, “From a receive-only perspective, there’s definitely a lot that must be put in place operationally and it’s maybe not as complicated as you think. We haven’t found the need to make any wholesale or major operational changes or upgrades like bringing in a large amount of staff for 24/7 support. It’s really an expansion and extension of what we’re doing to support other payment rails.”
According to Cook, liquidity management, fraud prevention, compliance—in addition to both customer and employee education—are crucial factors to implement real-time payments successfully. But while many companies would like to jump on board and implement real-time payments, there are significant hurdles to overcome first. And many are already finding themselves in front of some of these hurdles.
“One of the biggest challenges we see companies facing is how to overcome their dependencies on legacy systems that were designed decades ago and not designed for real time payments,” said Fitzgarrald. “This is primarily the case with back-office systems that cannot match the real time capabilities of payment front ends.”
How To Support Real-Time Payments
Real-time payments adoption will only continue to accelerate on a global scale, but as noted, before real-time payments are deployed, a strategic plan is imperative.
“What is it you’re trying to do with your business? How could faster payments really affect you and provide advantages to you? There’s lots of folks out there who can help you connect the dots both on the solution provider side, but also on the intellectual service provider side,” said Luhtanen.
“Identifying those trusted resources to bring in as partners is going to be critical to building that strategy and figure out how you put it all together from a financial institution perspective,” he said.
According to Cook, aside from implementing the software solutions and other technological tools necessary, we must not forget about one of the most important resources in the faster payments puzzle: the people.
“Something that’s important to the adoption and onboarding of real-time payments is education and awareness for your employees,” he said. “Internal employees are used to how ACH wires and checks work and it’s hard to understand some of those fundamental differences.”
“Focusing on those fundamental differences and making sure there’s a broad understanding, as well as painting a picture of what the future holds with real-time payments and all the possibilities with innovation, those are really important pieces to make sure your teams understand.”
But it’s also important not to forget the role that software plays in the implementation of real-time payments.
“Software is at the core of every payment and it’s the heart of every company’s payment operation. So, software plays a huge part in the modernization of payment operations for real- time payments,” Fitzgarrald said.
Looking Ahead
Getting onboard with real-time payments will certainly open many opportunities for businesses, banks, and customers. What remains to be seen is what the implications for real-time payments will look like. As an example, retail businesses, according to Luhtanen, may be used to operating 24/7, but are not necessarily used to receiving constant settlement payments throughout the day. Luhtanen recommended having guidelines and best practices in place.
