Interest in real-time payments adoption is on the upswing in the United States, especially with more than 115 depository institutions live on the RTP® network and with more than 110 financial institutions (FIs) participating in the Federal Reserve’s FedNow pilot program. Participants include major U.S. banks as well as credit unions and smaller, community and regional banks. One of these participants is Alabama-based community bank Bank Independent.
Kelly Burdette, senior vice president of product and delivery for Bank Independent, said the Fed’s promise of a ubiquitous real-time payment network was the most enticing prospect for the FI.
“It keeps us on an equal playing field with [the] super-regional, national or international banks that we compete against directly,” Burdette said in a recent interview with PYMNTS. “We can [tell our clients], ‘You don’t have to go to these larger banks; you can stay with us as your chosen community bank in the communities that we serve because we offer the same type of technology.’”
He also pointed out that those who work in the gig economy, such as Uber drivers and food delivery workers, may be more eager to receive funds in real time, as they currently do over the RTP network. Offering such services could open opportunities for banks to remain competitive and gain some new market share and customers, he said.
In a recent interview with PYMNTS, Burdette explained Bank Independent’s view on where faster payments are headed, the significance of real-time payments in the banking space and what is on the horizon.
Interoperability And Monetization Challenges
FedNow, much like ACH, is government-backed. This means the system comes with the assurance of equal access and cost.
“The smallest institutions just don’t have the financial capability [or] the people capability to implement multiple channels of payment rails,” Burdette explained. “It’s hard enough for us now with ones we have, let alone when you start introducing multiple new ones to the space. [This is why] it is incumbent upon the industry to make sure we have interoperability so that everyone has the opportunity to get in there.”
The Faster Payments Council published a white paper shortly after the Fed announced FedNow detailing how interoperability is defined, how it would occur, how settlement would be achieved and how businesses and consumers would be paid quickly, seamlessly and securely. The Fed insists that its system will be capable of working with not just the RTP network but also other real-time services, and it plans to employ a transparent governance structure.
“Interoperability is a key driver [for us] and has been since day one,” Burdette said. “Customers don’t care which payment rail or services they use; they just want their money to move. It is incumbent on us as an industry to make that process as frictionless and easy as possible. “
Bank Independent still had some questions and concerns about how the FedNow pilot program would work as well as if it would be able to address payment fraud. Funds that are mistakenly sent to fraudsters in real time have no way of being retrieved because such payments are irreversible once executed.
“Fraudsters will be there as fast as we can get there. They’ll be there in real time as well,” he said.
The FI is also concerned about how to monetize the system. Most private banks earn funds via transaction-based revenue models, which begs the question of how a regional bank like Bank Independent will monetize real-time payments. This is particularly important to discuss as part of the FedNow pilot since Bank Independent will need to cover the costs of joining multiple networks, including the costs of its underlying IT infrastructure.
“It’s critical for banks, credit unions [and] anyone else in the finance industry to understand the monetization impact of this new payment rail,” Burdette said. “We have not had to think about that in this bank since the ’70s, when the ACH [network] started. Now, there’s a new set of rails and a new set of opportunities on how we as an industry are going to pay for that.”
Small private banks like Bank Independent are taking a wait-and-see approach on whether FedNow delivers on its promises of interoperability across the platform.
“The hockey stick adoption of faster payments as a whole is off the charts,” he said. “I think we’ll see that. But if there’s no interoperability, it will come down to — especially from smaller FIs — what makes the most sense for them.”
That could mean rejecting the real-time payments scheme altogether if interoperability does not happen.
“If we don’t get the interoperability, why not just stay with [credit] cards — they’re already interoperable. It doesn’t matter whether we have Mastercard, Visa or Discover — they’ll take your payment in any store, anywhere,” Burdette said. “It’s incumbent upon the industry to make sure we have interoperability so that everyone has the opportunity to get in there.”
There is no question that instant payment systems delight consumers, but selling those benefits to corporate clients is more challenging. Bank Independent still juggles with the best use cases for real-time payments. Its factoring market is one opportunity and large government contracts that are both domestic and international are another, according to Burdette. He said the bank’s focus for these payments is domestic, but it is keeping an eye on long-term opportunities.
It will take some time before Bank Independent figures out its different profit opportunities and feels comfortable with real-time payments as their implementation unfurls. There is little doubt that the companies that position themselves to capitalize early will see tremendous opportunity once the industry settles.
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