EXCLUSIVE – When The Clearing House (TCH) rolled out realtime payments last November, one would think banks would quickly jump on that bandwagon, right? Wrong, according Vinay Prabhakar, head of markets strategy, Payments at Finastra.
The problem, as it often is with big institutions, comes down to the bottom line.
“We are all used to certain ways of making payments on the consumer side and business side,” Prabhakar said. “And if the banks are not sure how to roll out this rail without cannibalizing their other sources of revenues, that’s where the problem lies.”
The solution, according to Prabhakar, is education.
Educating the banks and their customers on the benefits of realtime payments is crucial.
The retail consumer side, of course, doesn’t need much convincing. Customers would, obviously, want to get and be able to make instant payments.
That’s not the population Prabhakar is referring to, he’s thinking more about check-writers, small business owners and other such customers that still rely heavily on old fashioned payment methods.
From the banks’ side, the hesitation to embrace RTP is not just a behavioral problem.
“Banks have been modernizing by adapting to cloud-based services in most departments,” he said. “but that’s not true for payments. Historically because of security, but today it’s more so because banks think there is no measurable benefit to RTP.”
“There are a lot of banks that have strong revenue coming out of their card or wire business, so they don’t want to switch,” he said.
There might not be a direct revenue increase due to RTP, but it will increase transaction volume, and cut costs to run and maintain the exiting payment systems, he said. This will eventually trickle down into revenue.
Another issue is that banks don’t know “how to sell the idea of RTP,” he said. And that’s where “fintechs come in,” he said.
Take Finastra for example. The company has worked with PNC Bank to install RTP and is currently working with another major U.S. bank on a RTP project. Prabhakar could not name the bank.
Currently, Finastra is also working with Swish, Sweden’s instant payment system as well as many major U.K. banks to enable realtime payments. Although Prabhakar could not name specific banks, he said that 30% of the instant payments in the U.K. go through Finastra’s software.
Finastra is one of four core major system providers enabling RTP connections. Its system is fully cloud-based.2 - Readers Like This Post