Posted by Bethany Frank on 17 Aug 2016
The modern world has reached an impressive level of connectivity, enabling people and systems around the globe to communicate with each other instantly around the clock. Unfortunately, payments are not as fast and connected yet. That, however, is slowly changing – no longer just another industry buzzword, many of the world’s top financial institutions are looking to enhance service offerings by investing in infrastructure that enables real-time payments. Below are three potential ways consumers can expect to use faster payments capabilities in the near future:
Over the past decade or so, the technology sector has successfully managed to chip away at the profit margins of financial institutions, with many projecting further losses for banks as the “digital disruption” leaves its mark. Companies like PayPal now pose a significant threat to traditional banking at large. As a startup that’s gained worldwide popular support, PayPal inspires a new model of financial services that has been received favorably by consumers thus far. Over the next decade or so, banks are likely to see even more competition from the technology sector.
Real-time payments could help banks reclaim some of that lost market share. Faster payments rails will enable banks to provide consumers with viable alternatives to third-party money transfer services like Western Union. Since banks have the advantage of greater stickiness with their customers, simply offering more convenient payment options could be enough to convince some consumers to use their banks for P2P remittance as well. Ultimately, the consumer will benefit from a host of competing services driven by faster payments technology.
Real-time payments could help merchants and other micropayment-based businesses reduce processing costs and improve processing times. Credit cards are not always profitable for merchants and retailers. High processing fees lead many to declare credit card minimums, which could lead to losses for businesses where micropayments are common, such as convenience stores. Due to its own fees and slower processing times, the ACH network is not always an ideal alternative. Faster payments capabilities would enable businesses to accept small payments in a more cost-effective manner.
The IoT presents lucrative opportunities for real-time payments providers to establish themselves in a completely new market. Driven by the emergence of virtual personal assistants like Amazon Echo and Google Home, faster payments rails could make things like automatic fulfillment and AI-assisted shopping orders a lot more efficient for consumers and businesses alike.
Much of the conversation surrounding real-time payments focuses on the backend benefits for financial institutions and businesses. With so much competition stemming from Silicon Valley and elsewhere, real-time payments could help banks capture new markets, capitalize on potential revenue streams, and retain relevancy in the digital age. Consumers, however, stand to gain the most from faster payments capabilities. The battle between the financial and technology sectors will yield only positives for consumers, as a competitive market is likely to spur further innovation that could transform financial services into a truly consumer-focused industry.