Consumer adoption of digital payment methods has grown steadily for decades, and social distancing requirements amid the COVID-19 pandemic kicked that transformation into high gear. Community banks can position themselves for success by keeping abreast of developments in faster payments and strategically implementing solutions to continue delivering the exceptional customer experience for which they are known. 

Annual digital payments transactions are projected to top $1.5 trillion from nearly 280 million users by 2024. With the increase in volume and users has come elevated consumer expectations. “Consumers are operating in a faster payments world,” said Tina Giorgio, AAP, president and CEO of ICBA Bancard. Today’s consumers experience instant gratification in so many of their consumer-business interactions, it has become a standard which applies even to industries like finance. Consumers and business clients alike now expect to be able to pay friends or suppliers, settle bills, and transfer money whenever and wherever they choose.  

Giorgio will be presenting at the upcoming WBA Management Conference. Join us Sept. 15 for her session on the why, when, and how of a community bank’s digital payments strategy. Click here to register your entire team for one low price!

Since its inception, the applications for faster/real-time payments have continued to expand. “The use cases around faster payments are changing faster than the technology,” said Giorgio. A 2015 Deloitte study outlined five main categories: business to business, business to consumer, consumer to business, domestic peer to peer (P2P), and cross-border peer to peer. Of these five, the fastest growing (in the U.S.) is domestic P2P, with over 20 different application vendors in the market.  

One of those vendors, PayPal, reported a 29% jump in year-over-year volume in Q2 2020 and added 21.3 million net new active accounts (the strongest quarter for that measure in PayPal’s history). Of course, some of this growth can be attributed to COVID-19. “P2P is growing exponentially, even more so since the pandemic began,” Giorgio explained.  

In addition to P2P, banks should also consider applicable use cases in B2B, including a simplified vendor/supplier payment system, which currently involves purchase orders, invoices, checks, ACH, and other individual payment transactions.  

As faster payments technology develops, community banks have two primary roles to play, according to Giorgio. First, and most important, is staying informed and delivering value from new developments to customers. Second is participating in industry groups—such as the U.S. Faster Payments Council and the Federal Reserve’s Payments Improvement Community—to provide perspective and representation on issues affecting the industry and community banks, specifically.  

Implementing Faster Payments: Why, and How? 

Customer retention and enhanced customer experience are the two primary benefits for banks that implement faster payments solutions, according to Giorgio. “Having that available when it’s needed is a huge advantage,” she said. For example, to a small business that needs to deliver payroll but is experiencing cash-flow issues due to COVID-19, the ability to send funds instantly rather than days in advance is a liquidity live-saver. 

FedNow Service webinar scheduled 
FRB Services has scheduled a one-hour informational webinar on its FedNow instant payment service for Wednesday, Sept. 9, at 1:00 p.m. CT. Interested parties must register and submit any questions in advance. 

Despite growing competition from non-traditional lenders, consumers still look to their trusted financial services provider for payments services.  “If the bank offers a digital wallet or P2P solution, their customers will use the bank’s product rather than a fintech’s. “That’s the power of a pre-existing relationship,” Giorgio said. Those comments are supported by research from Ernst & Young which noted roughly 60% of consumers would turn to their existing bank first when considering a new financial services product.  

When it comes to implementing faster payments products and services, community banks must clear three hurdles:  

1: Define the strategy: Pursuing every faster payments product on the market isn’t feasible, so defining a strategic direction is essential to getting it right. “There’s so much out there, you have to figure out what your customers’ priorities are so you’re spending time and money on the right solutions,” said Giorgio. If your bank is just getting started in faster payments and you’re looking for the most critical first step, Giorgio recommends establishing the ability to accept faster payments. “Even if you’re not ready to start originating faster payments, you should determine what you need to do to be able to receive those transactions. Not having the ability to receive payments puts your customer relationships at risk.” 

2: Integrating tools: Banks rely on a core service provider, along with a collection of platforms and tools to deliver services and information to customers, so it’s critical to ensure any new faster payments technology integrates with essential legacy systems. “Interoperability is a challenge,” said Giorgio.  

3: Affordable Access: Finding a solution that is both functional and affordable for the institution and its customers can also be challenging. Fortunately, more banks have a wider array of technology partners to choose from as more legacy core systems shift toward interoperability as the default. “Many of the cores are now starting to open up their systems and allow integration through application interfaces [APIs], which allows banks to select any provider of a solution and integrate it into the core,” said Giorgio. This gives banks greater ability to find a partner that meets both quality and pricing requirements.  

With the faster payments landscape continuing to evolve, now is the time for community banks to leverage their relationships with technology partners and their own deep understanding of their customers to bring the high-tech, high-touch banking experience that will continue to differentiate them in the years ahead and deliver the services that their customers rely on.  

Seitz is WBA operations manager and senior writer.  

ICBA is a WBA Gold Associate Member.