Embracing Innovation – Realizing the Benefits of an Instant Payments Environment

Today’s payments landscape is evolving, and community financial institutions (FIs) are investing in innovative tools and services to enhance the account holder experience and stay competitive in an increasingly crowded market. Technologies like digital wallets, P2P options and advanced card features like contactless payments and tokenization have consistently gained ground, offering both convenience and security for account holders. Likewise, embedded payments are becoming much more prevalent, providing streamlined, unobtrusive payment experiences through the digital channels.

However, the key innovation that ties into (and arguably empowers and enhances) all of these technologies is instant payments. From real-time account visibility and instant payment postings to the ability to offer up-to-the-minute loan and account balances, the benefits to financial institutions and their customers are compelling. And while the industry, in many ways, is still in its early phase of adoption and implementation in the U.S., there is a recognition that instant payments will be an essential component to the future of banking.

 

Focusing on the Right Technology for Today’s Consumers

With the demands of today’s increasingly digital savvy consumers, flexible payment options like digital wallets and Buy Now, Pay Later capabilities (BNPL) are continuing to grow in popularity and in turn, can help credit unions and community banks stand out and attract/retain members and customers. This is especially true for the younger generations that are a target demographic for most FIs.

 

With recent research from PSCU suggesting that over 80% of surveyed respondents place a high value on innovation when choosing their financial services provider, innovating is no longer an option, it is table stakes. Financial institutions should explore partnerships with aligned, likeminded fintechs that help them innovate faster, fill in the critical gaps of their tech stacks and make technology advancements in a safer, scalable manner than perhaps they could on their own.

While many community FIs tend to focus on the potential benefits instant payments provides for consumer transactions and account-to-account transfers, what is often underappreciated is the significant positive impact it provides for back-office operations. From streamlining internal business processes and B2B transactions, innovations that provide flexible, streamlined support for instant payments processes related to financial institutions’ core systems can be a game changer in driving efficiencies and revenues.

Overcoming the Barriers to Adoption

Even if they recognize the value of innovation, many community FIs still face barriers to their transformation strategies. FIs with constrained budgets, forced to operate with limited resources, tech talent and infrastructure, face significant challenges. For others, it may be issues with organizational culture or even shifting risk appetites that may inhibit change.

For successful instant payments adoption, there are three main challenges for community FIs to overcome:

 

·         Ambiguous Utilization – The financial institution may appreciate the value of moving money faster but has difficulty understanding exactly how to implement this technology throughout their organization (and how much volume they are likely to see through its capabilities). This can cause implementation delays and unnecessary spending.

·         Project ROI Concerns – Amid uncertainty regarding real-world use cases and utilization, many banks and credit unions are choosing to spend without a strong sense of when a particular ROI might be achieved, instead adopting a “build it and they will come” approach. This level of doubt and lack of direction can make clear investment decisions challenging, especially for new instant payments technologies.

 

·         Operational Readiness – Often overlooked and under considered when moving to an instant payments environment is the impact on the institution’s back office and operations. Transitioning to 24x7x365 settlement from a traditional banker’s hours schedule with legacy batch settlement requires a learning curve. With everything from exceptions and risk management to liquidity and reconciliation functions impacted, community FIs must consider and address each area before implementing, which in turn, often poses a much bigger challenge than anticipated.

Addressing and Mitigating Fraud Concerns

Fraud is always a significant concern for banks and credit unions, and this is especially true for risk related to payments. Ensuring the privacy, security and integrity of transactions and their sensitive data is essential. While educating account holders on security best practices and common fraud schemes is important, institutions must also have robust information security and compliance teams with the expertise in the digital channel to safeguard this transactional data and prevent financial loss.

 

Identifying the first signs of fraud early is critical and advanced data analytics tools can help spot trends and anomalies that may indicate fraud or unauthorized activity. Continuous monitoring for unusual activity that can analyze transaction patterns at scale can help detect suspicious activity more quickly and accurately. Real-time monitoring can generate alerts for questionable transactions, helping to detect fraud early and prevent unnecessary escalations. Once confirmed, the system can then automatically flag or block any similar activity that might signify fraud until it can be reviewed more thoroughly.

 

Detecting fraud is vital, but deterring these illicit activities is also a critical component of any risk mitigation strategy. In addition to continuous monitoring, regular risk assessments can help further identify potential vulnerabilities in payment ecosystems that can be proactively addressed before they become an issue.

 

The future of banking will be one built around instant payments. Those financial institutions with a thoughtful strategy toward adopting these innovations and addressing challenges head-on will be in a much better position to meet the evolving demands of their customers – both today and tomorrow.

About Author:

Amanda Crocker is the COO for SWIVEL, a financial technology and services company providing specialized, integrated transaction enablement solutions that remove friction for account holders, borrowers, and departments across financial institutions, as well as collections agencies and offices, while also mitigating risks associated with payments processing in the digital environment and moving funds in digital domains.


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