Posted by Bethany Frank on 14 Jun 2016
Real-time payments are now a major focal point within the financial services industry as consumer preferences shift towards products and services that are fast, convenient, and easy-to-use. The United States is now facing pressure to catch up as payments modernization efforts take off in Europe, Asia, and beyond. With non-bank players also entering the market to compete with long-standing financial institutions, the road towards faster payments has become a lot more crowded in recent years.
Working with a technology partner could yield significant returns for banks looking to remain competitive against new disruptive market forces. Below are some points banks should take into consideration before embarking on the journey towards real-time payments alone.
Banks don’t always have the expertise, especially from a technology perspective, to build the kind of infrastructure required to process payments in real-time. They could benefit from a technology partner’s insight, specializations, and broad industry knowledge— especially since real-time payments is a new territory.
The “digitization” of banking is both labor and cost-intensive. Being non-natives to technology, financial institutions often underestimate the resources required to build high-quality, secure banking systems. Such miscalculations could become extremely costly against competition from agile technology companies eager to cut into banks’ profit margins.
Independently building sophisticated payments infrastructure would be a risky undertaking for any business that lacks intimate expertise in technology. Sometimes banks seek assistance after struggling to develop an adequate solution on their own; this wastes time, resources, and funds. Partnering with a technology company from the onset eliminates these risks.
Delivering products to market in a timely manner is a major concern for banks looking to compete in the real-time payments space. With so many non-bank competitors developing and marketing their own real-time payments products, financial institutions could benefit from the speed and agility offered by a technology partner. Without having to worry about back-end processes, banks can focus on integrating faster payment capabilities into existing product offerings and expanding to other value-added services.
Beyond the sheer hours and manpower required, there are many development and maintenance costs associated with implementing a real-time payments solution that can truly compete with non-bank alternatives. Banks may not be aware of the actual costs involved and face unexpected expenses somewhere in the process. A technology partner can help banks better understand the space and pursue a course of action that is both cost-effective and profitable.
Many banks have internal technology teams or departments, but it could take years to build and train a team with the right synergy to complete projects as quickly and efficiently as a technology provider. Furthermore, entire projects could become derailed in the event of employee turnover. Working with a technology partner is simply easier from a logistical perspective as it reduces dependence on any specific individual(s).
A real-time payments system should offer low-latency processing times and 24/7 availability. While some banks may have experience with one or the other, most are not equipped to deal with such hefty system requirements simultaneously, making it a good idea to partner with a firm experienced in developing, implementing, and maintaining financial technology solutions. Various risk and analytics models also need to be developed in order for a real-time payments platform to operate securely. Without the help of a seasoned technology provider, for which such models are second-nature, banks would have to complete this crucial step on their own and risk making errors.
Constant technological advances make it difficult for financial institutions to stay on top of every industry trend. Even banks with strong internal teams could use the additional expertise, guidance, and support from a dedicated technology partner. The more finance and technology intersect, the more banks will have to invest in external resources to remain competitive against new market forces and keep up with consumer demand.
Technology needs will always vary depending on a bank’s size, its available resources, and specific strategic objectives; however, in today’s complex business environment, most banks looking to implement real-time payments could benefit from some level of IT support. Rather than take the risk of building or upgrading payments infrastructures internally, some banks may find it best to outsource their technology needs entirely. Others might look to enlist a partner for specific projects or as secondary support for an in-house team. Whatever the situation, the right technology partner will strive to understand a financial institution's unique challenges and provide a custom strategy to help it integrate into an immediate payments framework.