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The year 2020 drove many community banks to experiment and embark on faster payments. Concerns of payment disruption combined with the pressure to remain competitive are driving community banks to include faster payments in their strategic plans for the near future.
While COVID-19 accentuated the demand for real-time payments, many community banks are realizing that this technology is not something that can be put off, Deborah Matthews Phillips, ICBA’s senior vice president of payments and technology policy and ICBA Bancard’s senior vice president of industry relations told Independent Banker magazine. “Whether community banks are in planning mode or further down the line in strategy, customer expectations have changed. To remain relevant and competitive, they need to start down that faster payments path now.”
More than 60 percent of businesses believe faster payments will have a positive impact on their organizations, particularly when looking at business-to-business transactions, according to an Electronic Payments Survey from the Association for Financial Professionals. In fact, businesses are willing to pay an average of $10.50 per transaction for RTP according to a recent study by Levvel Research. Thirty-five percent of consumers, meanwhile, consider receiving real-time payments important, according to PYMNTS.com.
What’s more, 24 percent of consumers say they would switch financial institutions for access to real-time payments, finds the Accelerating The Real-Time Payments Demand Curve Report from PYMNTS and Alacriti.
Community banks offering faster payment services allow for the development of creative and relevant use cases aimed at improving convenience, cash flow and efficiency for both banks and their customers. Decisions whether to move money for investment management, transfer funds between accounts, or donate to charitable causes, have become customary faster payment uses.
With the Federal Reserve’s instant payments service, FedNow™, set to launch in 2023, and promising equitable access for all banks, irrespective of their asset size, some banks have expressed interest in FedNow pilot participation and early implementations.
Community banks that wish to send real-time payments transactions through The Clearing House’s RTP® system today, however, may elect to engage a funding agent, commonly a bankers’ bank, to help manage liquidity and balances. This will ensure customers can receive payments sent through the network. And, when FedNow is available, will allow your customers to receive faster payments from both networks, regardless of your strategy on sending faster payments.
As community banks consider the costs of a scalable infrastructure to operate faster payments, many will benefit from engaging a solution that enables them to go to market quickly and cost-effectively. Through third party service providers – including core processors, fintech partners, or bankers’ banks – community banks who once thought they could not meet deposit thresholds are still able to keep this option on the table.
Now is the time for community banks to start creating their roadmap to faster payments adoption.
Some community banks may not know where to start given the complexity of faster payments. To help banks gain a better understanding of faster payments, ICBA Bancard and Finzly co-presented an educational webinar in May. They covered trends in the faster payments space, an introduction to payments hubs, use cases and potential revenue streams. Go to https://www.icba.org/BancardEducation to view the recording “What community banks need to know about real-time payments.”
Suja Ramakrishnan is director of marketing at Finzly.