Real-time payments and community banks: meeting market demand

Whether community banks are in planning mode or further down the line in strategy, customer expectations have changed. To remain relevant and competitive, they need to start down that faster payments path now.

Deborah Matthews Phillips, ICBA’s SVP of Payments and Technology Policy and ICBA Bancard’s SVP of Industry Relations.

The year 2020 drove many community banks from their “wait and watch” approach to an “experiment and embark” stance on real-time payments. Concerns of payment disruption combined with the pressure to remain competitive are driving community banks to include real-time payments in their strategic plans for the near future. While COVID-19 accentuated the demand for real-time payments, many community banks are realizing that this technology is not something that can be put off. “The time to stay on the sidelines has passed,” Deborah Matthews Phillips, ICBA’s senior vice president of payments and technology policy and ICBA Bancard’s senior vice president of industry relations told Independent Banker magazine.”

Whether community banks are in planning mode or further down the line in strategy, customer expectations have changed. To remain relevant and competitive, they need to start down that faster payments path now. “More than 60 percent of businesses believe faster payments will have a positive impact on their organizations, particularly when looking at business-to-business transactions, according to an Electronic Payments Survey from the Association for Financial Professionals.

In fact, businesses are willing to pay an average of $10.50 per transaction for RTP according to a recent study by Levvel Research. Thirty-five percent of consumers, meanwhile, consider receiving real-time payments important, according to PYMNTS. What’s more, 24 percent of consumers say they would switch financial institutions for access to real-time payments, finds the Accelerating The Real-Time Payments Demand Curve Report from PYMNTS.

Real-time payments use cases

Community banks offering real-time payment services allow for the development of creative and relevant use cases aimed at improving convenience, cash flow and efficiency for both banks and their customers.Decisions whether to move money for investment management, transfer funds between accounts, or donate to charitable causes, have become customary real-time payment uses. With real-time payment services promising equitable access for all banks, irrespective of their asset size, the early adopters are expressing interest in FedNow pilot participation and early implementations. With the support of trusted technology partners, they can embrace the vision of The Faster Payments Task Force (see: The U.S. Path to Faster Payments, Federal Reserve) with its emphasis on inclusion and ubiquity. Community banks who wish to send real-time payments transactions through The Clearing House’s RTP system may elect to engage a funding agent, commonly a bankers’ bank, to help subsidize the required minimum balance.

Real-time payment implementation costs

As community banks consider the costs of a scalable infrastructure to operate real-time payments, and many will benefit from engaging a solution that enables them to go to market quickly and cost-effectively. Through third-party service providers – including core processors, fintech partners, or bankers’ banks – community banks who once thought they could not meet deposit thresholds are still able to keep this option on the table. Now is the time for community banks to start creating their roadmap to real-time payments adoption.