It is only fair to acknowledge that real-time payments have the potential to decrease lucrative revenue streams for banks. But, this holds true with most emerging technologies that disrupt the status quo and allow new competition and new ways of doing business. Consider the music industry as an example.
When music went digital some firms went out of business while new ones came to life, yet many of the major players evolved to take advantage of the new opportunities offered.
Rather than focusing on the potential risk, banks should realise that in 2016 there is actually a long list of opportunities that real-time payments present, not only for other stakeholders but also for themselves. To make this case, I will point to some of the use cases and benefits.
Since consumers are considered one of the key driving forces behind the adoption of immediate payments, let’s start with the growing benefits for them over the upcoming year.
Whether it’s having the option to control when you pay bills, purchase goods outside of traditional business hours, split a dinner bill with friends (without burdening the staff), or to make a real-time payment at the point of sale, consumers can finally realise “instantaneous relief” while they perform their banking transactions. This is a process that has already begun but shall become significantly more prominent as we enter the new year.
• 24/7 payments will limit the need to carry cash or cards and meets the growing needs of millennials.
• The development of a proxy database that links consumer names or email addresses/ mobile phones to banks accounts will make sending or receiving immediate payments convenient, secure and ubiquitous.
• Immediate payments at the point of sale will lead to increased loyalty points to attract customers and drop retail prices as merchants save on interchange fees, terminal upkeep, and far better cash management.
• The introduction of integrated budgeting apps will serve as a more effective means for consumers to stay in control of their real-time finances and will eliminate guesswork around budgeting for mortgage/rent, utilities, credit cards and other important bills.
Corporates, small businesses, in-store and online merchants have also started seeing the benefits of new ways of transacting as immediate payments expands its footprint around the world.
• Freed up working capital will give businesses more room to breathe. Auto-generation of invoices, payment tracking, and just-in-time inventory are examples of better invoicing terms. This will be particularly helpful to capital-intensive industries, like shipping.
• The richer data carried, such as remittance information contained in ISO 20022, is a key factor for choosing ISO 20022. This is especially true in countries like Canada and Australia where there are plans to drive economic growth. The use of ISO 20022 for real-time payments systems around the world will help improve payments reconciliation for businesses of all sizes.
• Mobile payments at the point of sale or for e-commerce is particularly attractive for merchants as they will be able to avoid interchange fees and chargebacks associated with other payments types.
With banks, most benefits can really be traced back to new revenue. First, it’s about taking back wallet share that’s been lost to non-bank payment providers. Second, real-time payments extend the opportunity to create new payment products to target P2P payments, P2B payments and B2P payments.
• Offering new and useful products and services built on an immediate payments platform can only help to meet the growing consumer and business demands. This is the most direct way to help boost customer retention rates and revenues and secure a role at the centre of customer financial needs.
• Developing a real-time payments infrastructure is a great opportunity to pursue a renovation project across internal, legacy banking and payment systems that might currently limit innovation and present other constraints.
• In addition to businesses, banks can also use ISO 20022 to improve remittance information and product innovation.
By Barry Kislingbury, Director, Solution Consulting, Immediate Payments, ACI Worldwide.