Creating a Real Time Payments Strategy-A Guide for Banks

Nearly a year ago The Clearinghouse’s Real-Time Payments launched in the U.S. amid much fanfare. Since that time, the industry has been hard at work trying to create a real-time payments strategy that integrates this new scheme into a business payments landscape that’s not accustomed to speed being a primary driver. It’s a challenge that’s been easier said than done, largely due to the pervasive mischaracterization of the new payment mechanism.

When people hear the term “real-time payments” they generally focus on speed. It’s a reasonable reaction for people who are mired in business payments and are accustomed to most things taking days if not weeks to transpire. It’s like when you think about Teslas. The first thing that jumps to mind isn’t the fact that it’s an electric car that eliminates emissions but the fact that it goes from 0-60 mph in 1.9 seconds. Speed is sexy and intriguing, two very compelling components in attracting attention.

Unfortunately, focusing on speed alone with real-time payments overshadows the bigger picture-- and therefore the true value -- of this new payment scheme. The real reason real-time payments is a big deal is because it opens up communication lines between businesses in a way that’s integrated directly with the payment itself.

Real-Time Payments is the first new US payment system in 40 years. By anyone’s standards that’s a very big deal, especially since it’s an ideal opportunity to address longstanding points of frustration in existing payment systems -- shortcomings that have led to a reality in which 51% of B2B payments are still facilitated through high-cost, cumbersome, paper-intensive, and increasingly less secure check-based payments. 

Just look at the impact Real-Time Payments has had in Europe. It’s well into its evolution there, with institutions using it to create new value-added services such as request-to-pay, as well as to help their business customers manage capital more efficiently. Real-time payments has impacted European payments in ways we couldn’t have imagined and promise even bigger advancements to come.

U.S. banks should keep the success of the European market in mind when considering their own Real-Time Payments strategy. It would also be wise to consider a recent study by Aite that makes it clear that a “wait and see” approach to implementing Real-Time Payments isn’t ideal:

"Banks are being forced to consider a B2B real-time strategy before market adoption is clear...their clients are demanding it"

Aite Group

The reason clients are demanding Real-Time Payments is because of their experiences in their consumer lives, with services like Venmo and Zelle making P2P payments a quick and simple part of everyday life. Because of this, it’s become clear that it’s time for banks to embrace the reality of Real-Time Payments and find a way to sell it to business customers.

Thankfully, it’s not a difficult task as long as you focus on the goals of those customers and the challenges they face. By helping them understand how real-time payments is a valuable addition to their business, one that can help them be more effective, you can elevate your position to the level of trusted advisor -- which is exactly where you need to be in an environment where businesses expect and need their banks to be industry leaders.

But this does mean that as you build your real-time payments strategy, you’ll have to go beyond the fact that faster payments offers enhanced payments speeds. Instead, you’ll need to make a bigger case for its other benefits, such as automated payment status updates, integrated remittance and payment information and the fact that it can act as an integrated communication channel between parties. It also provides a tremendous service in helping businesses get paid, which in and of itself should be a persuasive argument

One of the most compelling cases you can make for real-time payments, however, is its role as B2B payments problem solver. Let’s take a look at the challenges it can help businesses address…

Remittance

Many businesses are content to staple invoices and other documents to checks as a way of retaining the valuable remittance information related to payments. But that paper information is not easily converted into electronic form, which is problematic for organizations. Real-time payments offer extensive messaging capabilities based on the ISO20022 message set, allowing for invoice data to be attached as well as supporting other critical information organizations require to efficiently match payments to outstanding invoices.

Collaboration and Communication

Real-time payments allow for questions and responses within the payment channel so that buyers and sellers can have two-way communication, rather than today’s sterile, one-way push or pull payments. This functionality provides a number of different benefits, such as faster delivery of goods due to instant supplier payments, “last hour” payroll processing to gain additional working capital, the ability to capture supplier discounts, niche market plays such as immediate insurance payouts as well as faster invoice matching and application of funds.

Traceability

Rather than trying to connect emails, phone calls, accounting systems and bank accounts, real-time payments keep track of all the back and forth messaging around a single payment. This allows for a more cohesive view and transparency around a given transaction by both parties.

Accessibility

All too often the efficiency of finance teams is hindered by the complicated nature of their payment processes, which is antithetical to the reality of their consumer experiences with companies like Amazon, Netflix and consumer-oriented RTP providers Venmo and Zelle. By providing seamless, easy-to-use real-time payments options, banks can take advantage of an ideal opportunity to be viewed as innovators, further securing their position as trusted business partners.

Change is never easy, especially not when the potential benefits of the change are unclear. But real-time payments represent a unique opportunity for banks to provide their business customers with a payment solution that helps them accelerate their businesses. It’s an opportunity that’s too good to pass up -- and one that, if the success of the European market is any indicator, will be worth it in the long run. But the time to implement real time payments is now because remember, he who hesitates is lost.