The financial services industry is integrating new digital tools into its growing landscape. One digital tool that has affected financial services, in particular, has shifted money transactions between many different parties. This tool is an important topic of discussion among financial professionals.
Well, experts in the financial services industry are predicting that this type of payment will affect all different types of transactions in this sector.
“The mass adoption of real-time payment systems around the globe has contributed to an environment in which many consumers, merchants, and financial institutions expect to be able to pay friends and customers, settle bills, and transfer money at the drop of a hat. While the concept of “paying now” is not a new one — cash is an immediate payment transaction instrument after all — the growth of “real-time payment” options has helped build a new standard among consumers.” Deloitte reports.
This type of payment has created a change. This kind of change will affect how consumers carry out payment methods, and if financial institutions are ready to meet the demands of this new found customer. Cash may become an obsolete thing of the past.
How Real-Time Payments Work
Real-time payments are 24/7. They offer instant electronic fund transfer, found through different channels such as smartphones, tablets, digital wallets and even the internet. Payments can be sent instantly, from accounts to financial institutions. This innovative platform has created a digital commerce that is real-time and innovative.
First, authorization occurs that gives a certification of the payment. Then, funds are made available from the transaction. Then, an instant settlement occurs between the financial institutions. Then, the payee receives a notification of funds and the status of the transaction.
It comes as no surprise that real-time payments have made their way to the financial services industry. As technology grows and expands, customers are more connected digitally than ever before, which means they are on the go. Real-time payments cater to this new type of customer.
According to Deloitte, there are significant benefits to real-time payments.
“Real-time payments can benefit financial institutions (FIs), merchants, consumer, and society by offering enhanced visibility into payments, by enabling better cash management and by helping businesses better manage day-to-day operations by improving liquidity. The liquidity improvement can be especially impactful to small merchants who may be used to waiting days for their settlement, possibly creating a positive impact on their cash flow and daily sales outstanding (DSOs).” Deloitte reports.
Accenture’s latest research agrees with the benefits of real-time payments. In fact, according to its research, 35 countries have jumped on board to integrate real-time payments throughout financial institutions.
“Not only do banks need to meet consumers’ rising expectations, they are also facing intense pressure from governments to create nationwide and regional real-time payments systems that can be used by all financial institutions. Given these drivers, immediate payments is expected to become the new standard for banks – making it imperative that they support progress towards it. Any bank that fails to embrace immediate payments will face losing market share, relevance, customer relationships and revenues.” Accenture reports.
Real-Time Payments Categories
Business to Business
Business to business payments has become more complex over the years. As the world moved toward digital payments, we have seen a shift in how businesses carry out payment transactions towards one another. Transactions between a buyer or a seller could take days, consisting of a variety of platforms and transactions. As you can imagine, in the fast-paced business world, this could be a hassle.
This has changed in 2017, especially with the arrival of real-time payments. B2B platforms are integrating different trends into its payment methods. According to Business Insider, there are key takeaways regarding B2B platforms and payment methods.
- The business-to-business (B2B) payments market is a vast opportunity. In the US, B2B payments reached an estimated $18.5 trillion last year, vastly outstripping the consumer-to-consumer (C2C) and business-to-consumer (B2C) realms.
- The complexity of B2B payments is holding back innovation, but times are beginning to change. Consumer payments innovation and a vast greenfield opportunity are making the space more accessible and more appealing to payments firms, which is translating to broader market availability for merchants.
- But until digitization permeates all stages of the complex B2B payments process, and allows those disparate segments to work in tandem, we won’t see any major steps towards an industry standard
Business to Consumer
The demand of the mobile customer has shifted the priorities of businesses, making payment an urgent transaction and one that needs to be seamless, quick and convenient. According to Bank of America, digital payments don’t only satisfy customers, but they are safer, decrease fraud and are more efficient.
Paper checks can be pricey, compared to electronic transactions.
“U.S. merchants alone could save $1.7 billion annually by eliminating disbursement checks. In fact, 82 percent of companies point to cost-saving as the No. 1 reason to move away from paper1. Even sending plastic prepaid cards is less expensive than sending checks, especially for recurring payments.” Bank of America reports.
Peer to Peer
Peer to peer payment methods have increasingly shifted since the arrival of Paypal and Venmo entered the marketplace. Now, consumers are able to send money transactions seamlessly and quickly, all with the swipe of a screen. Apple Pay has also been integrated into consumer transactions, which is only developing to possess more payment tools and features that put consumers in charge of financial transactions.
Consumers no longer have to pay each other through the phone, or paper check. Digital transactions have changed the way we communicate forever.
“Quick and easy to use, P2P payments like Venmo, PayPal and Square Cash allow users to send one another money from their mobile devices through a linked debit card. Here’s what to know about how it works, how to use it safely and how to choose which service to use.” Nerd Wallet reports.
The safety concern around digital P2P payments has been brought up and explored by professionals. The truth behind the safety of these types of transactions is that the consumer has the power to be as safe as they would like to be. For example, before sending money to someone, it is important to make sure that the person is the one who is intended and not a stranger.
You can also choose to have a pin number, password, and notifications for the apps that give you first-hand insight into the activity that is occurring. That way, if there is a transaction you are not familiar with, you are able to be alerted right away. Besides, if you are still uncomfortable with using payment apps, you can contact your bank because most banks have set up their own payment transaction functions through the bank’s app.
“One example is the Peer to Peer (P2P) space, where there are currently more than twenty applications in the US market, enabling payments on smartphones, using bank accounts or debit cards. Forrester forecasts that P2P payments will reach up to $17 billion by the end of 2019 from $5 billion in 2014.3 We believe this rapid growth of P2P is largely driven by accessibility, and an attractive user experience that focuses on speed and convenience for both domestic transfers and cross-border remittances.” Deloitte reports.
Challenges Of Real-Time Payments
The challenges of real-time payments are simply getting on board with adopting it as a concept in your operations. Since rapid technological change is affecting the industry, professionals in this industry are struggling with keeping up with the demanding expectations that come with this change. Customers are shifting priorities, and banks are forced to deliver on these priorities and expectations.
In the past few years, banks have also faced the competition of fintech startups, that offer a focused approach towards mobile and digital payments. New services drive customers in, as new options are offered to customers that stray away from traditional payment methods. Along with new approaches, comes the idea of new partnerships, that help drive and launch these startups. Financial services are having a challenge with fully adjusting the enterprise to match what these startups are offering customers.
Updating the entirety of the enterprise is the first struggle, and getting the customer to follow is the next. Banks are put in a position to make sure that their services are safe and secure, and can measure up to other payment parties. Since real-time payments have affected the customer so much, banks must be always familiar with the emerging trends in the sector, and exactly how the customer reacts to them.
This includes creating real-time collaboration among all parties in order to achieve harmony and a seamless customer experience platform.
“While challenges remain to reaching this utopian future state, we predict that real-time payments will likely generate new consumer behaviors and spending patterns, thus increasing revenue for the payment players who are well-positioned to capitalize on this evolution. So what are you waiting for?” Deloitte reports.
ABOUT FSI TRANSFORMATION ASSEMBLY
Digital transformation has set its sights on the financial services and insurance industries. CIOs from North America’s top institutions are working to leverage new technology such as Artificial Intelligence to deliver products and services that answering changing customer needs.
As real-time payments continue to shift the financial services landscape, it is crucial for financial leaders to understand the impact that new tools and services have on customer service. Getting the entire enterprise on board is the first step to achieving an integration of real-time payments. There are many challenges that CIOs will have to face, especially the massive explosion of data that follows new tools and services in this industry.
As firms expand customer touch points through the use of digital platforms like social media, CIOs are dealing with an overwhelming volume of structured and unstructured data, resulting in an increased need for tighter security.
The Millennium Alliance is pleased to announce their biannual FSI transformation Assembly taking place on June 21-22, 2018 at The Mandarin Oriental in Miami, FL. This program has been designed for all of our partners, affiliates, and members to once again gather in our unique format to develop new relationships, collaborate with like-minded peers, and learn cutting-edge intelligence to take back home and help tackle the biggest business issues of today.
This is not just another “Financial Services” event. Spaces are reserved for the best in the business. Apply to attend here