Video Series: Real-time Payments Strategy—Decision Making for Mid-tier Banks and Credit Unions

Introduction

This video blog series covers real-time payments strategy and how smaller financial institutions can capitalize on the opportunity it provides. Throughout the series we’ll provide answers to frequently asked questions, like whether RTP should be an immediate or long-term roadmap item, what are the main decision points, how to navigate with limited resources and funding, what should be involved in vendor analysis, how to get started with real-time payments, and much more.

Episode 1: How and Why Banks Should Build Consensus

Episode 1 Transcription

Greg Lloyd: Banks should look to do three things to capitalize upon the opportunity that RTP presents them. First, they need to understand their what and why, and build consensus around it. If a bank’s just merely looking to launch RTP for the sake of table stakes, and just providing a basic product to their client, then that means they can approach it more simply. That simplifies the vendor process of how they’re looking at it and the effort they need to put in. That also simplifies what organizational support they might need behind it.

Is your financial institution ready for real-time payments? Find out with our 2020 Real-time Payments Readiness Report.

Alternatively, if a bank is viewing RTP as an opportunity to change more broadly, to perhaps enter a new market, broaden the product set in business banking or small business, or maybe launch a commercial bank, then that requires additional effort. That requires greater organizational support.

Either way though, it’s important to make sure you have support across the organization, because RTP is a significant enough effort, particularly for smaller institutions, that you need to ensure you have support from leadership on making fast decisions, as well as the financial support that’ll be necessary.

Episode 2: The Product Set and Your Offerings

Episode 2 Transcription

Greg Lloyd: Are you offering it across all products and all customer segments or are you focusing it in specific areas? Second thing I’d recommend is looking at your product set. Look at what products you offer, what areas. Are you going across the enterprise or are you only focusing on one area?

If you have a retail bank and a small business bank, you need to decide if you want to offer RTP to both of those customer sets. And then even within one of those, for example, your retail bank, are you offering it across all products and all customer segments, or are you focusing it in specific areas? For example, one bank might decided to focus RTP offerings only on their small business deposits customers.

It’s important to know these things so that again, you can gain alignment across your organization, but can also guide a lot of the future decisions you have to make around vendors, around money and around technology capabilities you’ll need to work on in house.

Episode 3: Understanding and Challenging Limitations

Episode 3 Transcription

Greg Lloyd: You need to understand these things so that you know how to approach RTP. Third and most importantly, you need to make sure you thoroughly look at and document all of your limitations. And this can go across a variety of different areas.

First, from a technology perspective, and also from a vendor perspective. What is your current technology stack? How are you currently structured? Do you have a single vendor? Do you have a mix of different vendors? How do they plug in together? How do they interact with each other? You need to understand these things so that you know how to approach RTP.

For example, in some cases a bank might have one or two vendors that handle the majority of their work, but those vendors don’t have end points for certain things. Or for those that have a third party fraud provider, that may not easily plug in to a new provider. So you need to look at what end points they have. Do they have APIs, or some other services that a new provider for RTP could easily plug into, particularly in a real-time environment?

Use our 2019 RTP Implementation Checklist to help guide your decisions and ensure you are on the right track.

The last thing I want to leave you is to make sure you don’t short-change your experience with RTP. RTP can be a huge impetus for change. It can be the reason for you to solve other problems your organization has been facing.

For example, we talk to institutions where they’ve wanted to implement a new fraud system for example, and they’d been trying to get the funding for that for five years. Given how RTP has the potential to change everything you do as a financial institution, this can serve as the impetus to support your business case, to support your reasoning to senior leadership for why you need a new fraud system. Because maybe you need that new fraud system enabled to support 24/7, 365 analysis. Or to be able to tie data together in a better way across different customer relationships. So again, don’t short-change this experience.

If you decide RTP isn’t your impetus for large change, that’s fine. Just make sure you put the thought into it, because you don’t want to get six months down the road and realize, oh, you wish you had gone bigger, and you didn’t, and now it’s too late to go back and seize the opportunity to again, drive broader change across your organization.

Episode 4: Vendor Analysis and Choosing a Partner

Episode 4 Transcription

Kara Ford: Fraud reviews and liquidity checks: will you be doing them as an operational team or will your third-party processor be doing that for you?

Choosing a partner for RTP: the first part of vendor analysis that you want to do is to do an internal review. You’ll want to look at your current operations, set up, how your technology stack is today, what your architecture looks like, and then identify any internal needs that you might have above and beyond payment processing.

Operationally, you’re going to want to determine from a strategic plan, will you be processing payments in-house or will you be using a third party to process those payments on your behalf? You’ll also want to look at some of the ancillary processes for payments like fraud reviews and liquidity checks. Will you be doing them as an operational team or will your third-party processor be doing that for you? During this operational review, you’ll be able to understand if you want to strategically maintain status quo by using a third party, or if you want to start bringing payment processing in house and build out an operations team that can support real-time payments and potentially your other payments like wire and ACH.

Episode 5: Architecture and Technology Review

Episode 5 Transcription

Kara Ford: From an architectural standpoint, you’ll need to understand where you are in a current state. You’ll want to know where you are from your current state so you can understand what the vendor can do today, but then you’ll also be looking at your future state goals and understand what you need to do to get there, so that way you can look for a vendor who can support that future state as well.

Is your financial institution ready for real-time payments? Find out with our 2020 Real-time Payments Readiness Report.

From a technology standpoint, you’ll want to understand how your internal applications communicate to each other. Are they using ISO messages to communicate or do you have a custom internal file type that you use that your real-time payment’s application will need to plug into in order to communicate with those applications.

The second piece of that is understanding if your internal communications can support the new volume that will be needed for real-time payments. If it can support ISO messaging in terms of an output in order to get the payment to the real-time payment rail, and then if it can respond in real time to support things like balanced checks, fraud reviews, and liquidity reviews.

Episode 6: Additional Needs and Vendor Considerations

Episode 6 Transcription

Kara Ford: The final piece of your internal review is understanding if you have any additional needs. The first thing you’ll want to look at is payment or file type transformations. You’ll need to understand if your current vendor who does that for you can support the new file type needed for real-time payments. The second piece you’ll want to look at is if your fraud system can support near real time responses. And the third thing you’ll want to look at is if you want your real-time payment application to be a cloud solution or an on-prem application.

Once you complete your internal review, you will now be ready to go out to the marketplace and review vendors for your RTP needs. As the second part of the vendor analysis, you’ll want to complete a vendor review. So the first thing you’ll want to do is make sure that your vendor is a good strategic fit.

Use our 2019 RTP Implementation Checklist to help guide your decisions and ensure you are on the right track.

Operationally, do they support what you’ve determined you wanted? Architecturally and technology, can they support your current state, and support any future state goals that you may have? And then you’ll want to look at any gaps that may be there from the vendor, and determine is it something that vendor can provide for you? Is it something you need to find another vendor to support, or is it something that you can build in-house and manage in order to create the real-time payments environment that you desire?

Next, you’ll want to look at your vendor’s ability to support your production needs, what their capacity looks like, and their scalability for the future. Today, can they support your current production needs? Can they support the needs of the future as RTP production occurs, and can they scale the production levels as your business scales?

The next piece when reviewing your RTP vendor is understanding how their production support works. Will you have somebody who can handle 24-by-7 production issues? Will that person be dedicated to your financial institution? And do you understand how their SEV-1 versus SEV-4 issues align, and do they align with what you’ve identified as a SEV-1 versus SEV-4 issue at your financial institution?

Lastly, you’ll want to understand if your RTP vendors align with your internal third party performance risk metrics.

Episode 7: How Can RTP Affect Your Enterprise?

Episode 7 Transcription

Greg Lloyd: When looking at RTP and trying to understand how it can impact your organization and what teams you might need to include, let me just start by saying, it can impact everything. It can impact all of your products, it can impact all of your technology teams, it can impact everything. So, make sure you take the time upfront to understand how each of those teams and parts of your organization may be impacted.

Include those teams and those organizations in your early conversations to explore. If you want to, for example, change something on your retail bank, that’s a great opportunity. Or, on the other side, capital markets is an area that’s not commonly thought of, but RTP and this opportunity can change how a capital markets team might function.

Is your financial institution ready for real-time payments? Find out with our 2020 Real-time Payments Readiness Report.

Similarly, internal, you think about your operations teams, your internal processes, how you move money within your institution for operational reasons. Think of all the times you cut a check for something other than for a customer. All of those scenarios are again opportunities for how RTP can improve your organization. So make sure you include all of those teams, and then you’re in the position to make a proactive decision about what you want to include, and what you don’t want to include.

Episode 8: Partners, Peers, and Technology

Episode 8 Transcription

Greg Lloyd: Look outside of your organization. There are plenty of people to talk to. The first one is TCH (The Clearing House). They’ve got a great team. They’ve got plenty of people who can support you, help you with your product ideas, help you with challenges you’re facing, help you solve technical difficulties, help you with looking at vendors. They can do all of these things for you. Don’t fail to seize that partner that’s in front of you. Leverage them completely.

There are also your other competing financial institutions. While you’re competitors, you also have to realize that the success for RTP is dependent on ubiquity and all banks adopting it. There’s opportunities for you to help each other by sharing challenges you’ve faced, how you worked through a particular question. For example, how some banks can talk to each other about how they adapted to real-time fraud analysis, particularly as a sending institution. Learn from each other and what challenges you faced and how you tried to solve those.

Use our 2019 RTP Implementation Checklist to help guide your decisions and ensure you are on the right track.

Lastly, your greatest partner is going to be your technology partner. You need to make sure you include them from the very beginning. RTP will change everything with how technology functions within your institution. You need to be looking at what systems you have, which ones are vendors versus which ones are internal, as well as how you can communicate with those systems.

For example, your fraud system. Does it have some sort of API interface? Or your operations systems, do those have some sort of API interface? You need to look at all of these things and if you don’t have these capabilities, then you need to build them. The only way to discover these early on is by including technology and impressing upon them the breadth of the potential of change here and making sure they’re helping you think through everything.

Episode 9: The First Step of Starting an RTP Project

Episode 9 Transcription

Greg Lloyd: When you’re ready to start a project around RTP, I’d recommend you do three things. First, document everything. Look at your people, look at your processes, look at your technology, and seek to document everything again, as much as you can. Look at the different teams, how they operate. Look at your fraud teams. Document how they capture data, where they get that data from, what systems it’s dependent on.

For example, many people look at the fraud system and they say, “Oh, we just implemented a new vendor, and it has the ability to process or make decisions in real time.” But what they fail to realize is that real time fraud system actually takes in data via batch from 10 other systems, and that only happens at 2:00AM for example. If that’s the case, your fraud system is not real time. So that’s why you need to take the time to document these types of things, again, across your technology teams and your technology systems, across your people teams, and across all the processes that support those teams. You need to take the time to educate. It’ll be impossible to have successful RTP project without the participation, the active participation, of all your partner teams across your organization.

Is your financial institution ready for real-time payments? Find out with our 2020 Real-time Payments Readiness Report.

But you need to empower them to do that. So take the time to educate them, hold town halls, send out information, do things like that, so that those teams are empowered to participate. So they’re in a position to challenge you, to raise key requirements, to call out key opportunities. For example, they may see a product opportunity to you as perhaps the enterprise payments manager won’t be able to see. If they’re down in the weeds in the auto lending part of your bank, for example, they’ll know exactly how their business works. And you want them to be in a strong position to think through how RTP can impact their business, and then come up with requirements and come up with business opportunities and business cases, for leveraging RTP.

The last thing I’ll say is there’s a wealth of knowledge available on the internet. So do some research, I’d encourage you to go find our readiness assessment, use that to also help go around to these teams, to help make sure you document everything properly, to make sure you’re asking the right questions. And also you make sure you’re including the right material as you educate your teams and your colleagues.

Episode 10: How Credit Unions Should Think About RTP Differently

Episode 10 Transcription

Kara Ford: We believe that credit unions should think differently about RTP by building out very distinct member focused real time payment products. As financial markets and generations evolve, how is your credit union evolving its competitive value? If you’re still not sure how a credit union should think differently about real time payments, let’s first start with identifying what is your target market for your credit union? Do you focus on car loans or home loans? Maybe you focus on small businesses. Depending on where your focus is at as a credit union, you can use this to help build out that very specific real time payment product. Let’s first take a look at car loans and home loans.

When thinking about car loans, do you see value in providing your member with the ability to fund a down payment on a car during an off hour or on a weekend when they’re out there car shopping? How about home loans? If your customer is looking at their dream home on a Saturday afternoon and they need to have the immediate money to make that down payment in order to not lose the house, real time payments gives you the opportunity to provide your customer with the ability to make that transaction even in off hours that your financial institution is not currently processing. If you notice as a credit union that your online engagement is increasing, it’s likely due to the fact that your members are increasing their technology adoption, looking for alternative ways to move money faster and cheaper and have the ability to self service their financial transactions.

Use our 2019 RTP Implementation Checklist to help guide your decisions and ensure you are on the right track.

Likely your members are looking for your platform to provide them with these enhanced opportunities, and real time payments can solve a piece of that opportunity for you. Think about RTP operationally as a way to also decrease your internal costs. There are many internal processes in behaviors that RTP can help decrease the cost to operate like the processing of checks and the handling of cash. We believe for credit unions, this is the opportunity for you to build out a product that is very specific for real time payments and your member needs versus what the big banks are solving for right now, which is finding a solution that meets everything from a small business up to a large corporate.

Up Next

Our real-time payments vlog series will continue with a look at product, design, and how to make the most of RTP for your customers.

See more from our Financial Services team:

• Read: 2020 Real-time Payments Readiness Report
• Read: Real-time Payments Implementation Checklist for Financial Institutions
• Watch: The Top Three Disruptors in the Financial Industry