Finding the 'why' behind real-time payments

For banks, real-time payments are a huge area of opportunity. Research shows that 99% of corporates with annual revenues of $1 billion to $9.9 billion expect to send real-time payments in the next five years.

Realizing that opportunity, however, isn’t proving easy.

“Many banks that have been live [with real-time payments] are not seeing the volume that they initially thought they'd see,” says a senior product manager of payments strategy at a large financial corporation.

Banks looking to increase the adoption and volume of real-time payments among their corporate customers need to recognize that those customers have a very different perspective on the real-time payments opportunity than they do.

“Corporates don’t want to talk about how the settlement works,” says Doug Hartsema, owner and president of The Hartsema Group. “They want to talk about what they do, and how they can change their businesses using this tool.”

Starting with payment decisions

In order to help their corporate customers change their businesses using real-time payments, banks need to first understand the payment decisions those customers are making today.

Those decisions increasingly depend on corporates’ unique payment scenarios. Research from Datos Insights found that in 2023, 75% of mid- and large-sized businesses surveyed reported using different payment methods by use case or depending on the situation or party being paid. In 2022, 63% reported paying by use case; in 2021, just 40% did.¹

Since payment choices are scenario-dependent, it’s essential for banks to offer corporates all of the available choices in the market while helping them determine which payment types to use — and when — without over-focusing on the technical aspects of how those payments work.

“Corporates want to talk about what they’re going to do with the water, not how the plumbing works,” says Hartsema.

Thinking beyond payment speed 

As a payment choice, corporates increasingly value real-time payments more for their ability to enable differentiated or improved experiences than for their speed.

Research from Datos Insights found that in 2023, 80% of mid- and large-sized businesses surveyed reported that real-time payments were best to provide a better customer/recipient experience (up from roughly 40% in 2021). Less than half (47%) of mid- and large-sized businesses surveyed reported that real-time payments were best to use in emergencies or for urgent past-due payments.¹

“There's a misunderstanding in the [banking] community about faster payments being all about the speed of the payment,” says Rick Scholz, Managing Director, Payment Advisory Services at Deluxe.

Faster speed is a valuable feature of real-time payments, but far from the only one. Real-time payments are also available 24/7, can come equipped with more detailed data and information within the payment and offer more transparency and visibility to senders than ACH and other methods.

Banks can help their corporate customers leverage those features — among others — to solve pain points or create better experiences.

Enabling differentiated experiences

Friction points in the customers’ own customer experiences, for example, can be an opportunity for real-time payments.

E-commerce returns are one such friction point. When an e-commerce retail customer returns an item, such as a dress, that customer typically has to wait for the retailer to receive and process the return of that item before they receive their refund. With real-time payments, the same customer could instantly receive their refund as soon as they drop off the return order with a pre-printed label.

That kind of seamless returns experience can set one e-commerce retailer apart from another.

“They've created a differentiated experience,” says an EVP and director of enterprise commercial products at a southwestern-based financial institution. “That kind of example is what every [corporate] customer is going to need to figure out — what’s going to make their business use real-time payments to differentiate themselves from their competitors who are selling a commodity. The dress is a commodity. It's the experience that's the differentiation.”

Conclusion: Making it meaningful

For banks, helping corporates understand why they need real-time payments in their own specific use cases is essential to increasing their adoption and volume. Doing that may require a mindset shift.

“It's really hard to come from an operator role and completely transform your mindset from being able to explain [real-time payments] and talk about it industry-wide to translating it to be meaningful for a number of client verticals — not just for things like payroll or gig economy payments,” says a large corporate financial institution’s senior product manager.

Making real-time payments meaningful for corporate customers across verticals will ultimately help banks realize the real-time payments opportunity.

Source:

1. Datos Insights survey of 1,037 mid- and large-sized businesses, Q3 2023.