Moving beyond ‘receive only’: What banks can do today to embrace real time payments

The financial services industry is evolving, with instant payment solutions like FedNow and RTP gaining early traction. For financial institutions, this shift presents both challenges and opportunities as they rethink their approach to payment processing.

To gain insight into this changing landscape, we spoke with Booshan Rengachari, Founder and CEO at Finzly. Rengachari shares his perspective on the hurdles banks face in implementing real-time transactions, the potential for new customer-centric services, and the strategic considerations for financial institutions as they navigate the world of instant payments.

What do you see as the biggest challenges facing financial institutions as they adopt and implement instant payment solutions like FedNow and RTP? 

One of the major hurdles for financial institutions is their tendency to view instant payments as just another core-extensible function. However, the reality is that most core systems are not equipped for real-time processing. As a result, institutions often end up with fragmented capabilities that do not truly support 24/7/365 real-time transactions, making the speed of settlement and meeting the requirements put forth by RTP and FedNow a real challenge. This also prevents them from fully leveraging the advantages seen in instant payment systems in other countries. Additionally, the lack of an overarching strategy to simply participate in instant payments means institutions typically accept whatever their core providers offer and must align with their vendors’ readiness cycles, further complicating the situation.

How can banks effectively balance the need for speed in instant payments with robust security and fraud prevention measures? In your view, what are the key factors that will drive consumer and business adoption of instant payment services? 

Clearly, for the immediacy of instant payments, fraud detection must also be immediate and integral, not an afterthought. Financial institutions must adopt platforms where fraud detection is seamlessly integrated into real-time payment processing. This distinction is crucial: every transaction occurs in real-time, adhering to the specified time windows set by the networks. 

To drive adoption among businesses and consumers, financial institutions should focus on the value they bring, rather than just the speed and immediacy of the transactions. By leveraging these payment rails, financial institutions can offer services that address customer pain points. For instance, they can enhance cash flow management with features like instant sweeping of funds, help customers avoid late fees by enabling last-minute credit card payments, or streamline loan approvals with instant automobile loans. The key is for financial institutions to highlight how these solutions solve real problems, making their services more appealing and boosting adoption rates. More importantly, the customer experience should also be seamless to send and receive instant payments. Many financial institutions have fallen short by offering ‘receive-only’ capabilities, creating a significant gap in the services they provide. 

How do you envision instant payments changing the competitive landscape for financial institutions, and what opportunities should they be prepared to leverage? 

Instant payments offer a significant competitive advantage in today’s financial landscape. Financial institutions (FIs) that offer instant payments using modern technology are leading the industry. They are innovating with practical applications like streamlined bill payments, early payment options, and immediate disaster relief donations – areas where speed is crucial.

Financial institutions are strategically leveraging instant payments to appeal to small and medium-sized businesses (SMBs) dealing with cash flow issues. They are not only prioritizing speed but also enhancing their offerings with value-added services like automatic reconciliation using the additional data fields of ISO 20022. This strategy positions them ahead of fintech firms that have excelled in catering to this specific customer segment.

The key to success lies in the strength of the FIs’ infrastructure. By prioritizing ecosystem-friendly practices—such as seamless API integration, robust payment testing in sandboxes, and transparent service delivery—FIs can maximize opportunities within their operations and across broader ecosystems.

What strategies can financial institutions employ to educate and encourage their customers to use instant payment services? 

Educating customers on the benefits of instant payments is the key to getting them on board. It’s not about telling them how great it is – it’s about letting them experience it first-hand. While it’s not a magic fix for every payment situation, instant payments can really shine in certain cases.

Take one of our clients as an example: they’ve transitioned their real estate customers from wire transfers to instant payments, highlighting the benefits of speed and immediate notifications. This practical application serves as an excellent educational tool.

Similarly, encouraging corporate clients to utilize ISO 20022 format files and APIs for instant payment instructions is another effective approach. Taking a customer-centric view and solving for their key challenges when making payments, will in turn help FIs communicat the value to their customers. It’s all about real-world benefits, not just theory. 

Looking ahead, how do you see instant payments integrating with other emerging financial technologies, and what should financial institutions be preparing for in the next 5-10 years? 

Money movement is at the heart of banking, touching every aspect from savings to loans to investments. These days, the industry is taking a fresh look at how money flows – wanting to make it smarter, faster and cheaper.

Take the ISO 20022 standards, for instance. They’re a perfect example of how we’re simplifying things, creating a common language for payments that everyone can understand and use.

Payment technology never stands still. We’re in a whirlwind of change right now, with central bank digital currencies, crypto, and AI all shaking things up. These innovations are forcing us to look at old problems in new ways. 

For financial institutions preparing for all this flux, it’s all about being adaptable. Payment systems shouldn’t be a ball and chain holding them back. Instead, it should be a versatile tool that lets them roll with the punches and seize new opportunities. Financial institutions should look to build a payment infrastructure that’s an asset, not a liability. It should give them the freedom to evolve, not trap them in the past.