What hampers the adoption of real-time payments?

As society heaves with change, it is often difficult to distinguish between those transformations that have come to stay and those that are more of a passing cult.  

There is an increasing appetite for banks to rethink their mechanics and overhaul their offerings to connect to environmental changes. Payments innovation is no longer optional and banks are matching the muscles and variable needs of a maturing global market. Imaginative use cases favoring the common man and the gig economy are leading to innovation-led transformations and significant partnerships with fintechs and other service providers. The US, already a latecomer to the arena, is still showing signs of inertia in adopting real-time payment solutions.  

While the appeal of having real-time payment capabilities is rewarding, there are many factors that impede banks and credit unions from pulling the trigger on implementing real-time payment solutions.  

While a lot is said about the potential benefits of real-time payments, let us analyze the reasons why FIs are slow to adopt real-time payment solutions.  

Our conversations with decision-makers in the banking industry have uncovered many reasons that hamper the adoption of real-time payment solutions. 

1. Which real-time network should we implement?  

Multiple players in an industry open up challenges of either having to choose one system or offer multiple systems with interoperability between them. The round-the-corner stance of Federal Reserve's FedNow alongside The Clearing House RTP (Real-Time Payments), a system that has rejuvenated payments after almost 40 years, stalked by other players like Zelle, makes the terrain very difficult to maneuver. Banks are struggling with their gambit to choose from one or all of these.  

2. Now that the pandemic is almost over, do we still need innovative payment solutions?  

There is no doubt that Covid-19 has had a profound bearing on accelerating the demand for payment solutions, spawning a host of new and imaginative use cases in the payment ecosystem. But now that banks believe that the pandemic is almost over, there is a tendency to apply brakes on payment innovation, envisaging a back-to-normal scenario into a pseudo-safety zone for banks.  

3. To wait and watch or lead the pack?  

Many FIs are playing a waiting game to see what their peers are doing to handle the flux around payment solutions. Many of the smaller banks are attempting to piggyback on their stronger counterparts to minimize their risks and costs around the transformation.  

4. Lack of understanding of the concept and approach  

A sticking point when it comes to the adoption of real-time payments is the lack of awareness and appreciation among those who have already adopted and those who plan to adopt real-time payment solutions. Nevertheless, more and more FIs are proactively seeking education now, especially to understand the use cases that can add more business value. 

5. Real-time payment systems are too convoluted and elaborate  

The systemic complexity of implementing real-time payment solutions is deterring many banks from considering solutions amidst other competing priorities and security concerns. Modifying their existing legacy technology systems is another fear for many banks and FIs.  

6. Cost of real-time payment solutions  

Banks are wary about the cost of implementing real-time solutions due to the novelty and complexity of the models. Many banks fail to realize that these solutions bring down costs associated with using checks and cash as instruments to pay. The cost of a scalable infrastructure to operate 24/7, investment in fraud avoidance and related compliance activities is also dissuading banks from immediate adoption of real-time solutions.  

7. Fear of losing revenue from existing 2nd-generation payment solutions  

Banks are uncertain if the implementation of real-time payment solutions will eventually displace banks' revenue from existing revenue streams like the currently preferred wire services and ACH. The uncertainty in the transaction costs involved eventually also poses a challenge to the business models of banks.  

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We are always happy to help you, whatever your stage in your innovation journey — whether you are just getting ready, or in the tactical or strategic stage of your real-time payments initiative.