The world is in the midst of a radical digital transformation, and everything about everything is changing. Consumers expect to have easy access to products and services at the mere touch of a button, and in the financial services industry, heavy competition is coming from fintechs and emerging companies. Winners of the future will need to be nimbler and more responsive than ever to keep up with rapidly changing consumer demands, and technology will continue to evolve more quickly than ever before. At M&T, we’ve recognized that we need to transform the way we work in order to keep pace with our rapidly changing world and provide extraordinary customer experiences. We’re making significant investments in enhancing our talent, improving our tools and capabilities, and adopting Agile practices that will enable us to deliver great outcomes to our customers at a faster velocity.
Given the rapid pace of innovation, the entire financial sector is on the verge of a tectonic shift in the payments landscape. Since the implementation in the early 1970’s of the Automated Clearing House network (ACH), the electronic funds-transfer system that facilitates financial transactions in the U.S., there have been two significant drivers of digitalization in the core payments arena. The first one is Zelle, an instant payment service that provides customers with a fast, reliable, and secure way to carry out person-to-person payments. Real-time payments (RTP) is the other new payment method launched by The Clearing House (TCH) that allows consumers and businesses to send and receive immediate payments via account-to-account transactions.
The current challenges of RTP and Zelle
Both Zelle and RTP come with their own set of challenges. Considering Zelle is still at the nascent stage, there is no standard approach for its implementation, and it’s up to each financial institution to either develop its own capabilities or leverage the ones provided by third-party vendors. At M&T, we chose to develop our own Zelle capability for consumer payments, and we’ve already been able to realize some significant benefits as we look to expand the platform for performing business payments and commercial disbursements. Another significant challenge related to Zelle is the monitoring, controlling, and detecting of fraudulent transactions. Zelle is not a true real-time payment solution, but funds availability is nearly instant. This pre-funding model creates risk. On the other hand, an M&T specific challenge with RTP was its incompatibility with our main payment platform. Due to this, we needed a partner that could help us implement RTP in a new environment. In the end, we decided to go with a partner that could provide a sophisticated hosted environment that integrated with platforms running in our own data center.
"The world is in the midst of a radical digital transformation, and everything about everything is changing"
Identifying a suitable RTP vendor
While selecting a third-party technology vendor for M&T’s RTP, our focus was to choose a platform that could be API enabled and easily integrated, have a robust, secure, reliable and fault-tolerant infrastructure, and offered a ramp up to volume-based pricing. Keeping all these criteria in mind, we took a collaborative approach toward the vendor selection process. Internally, we aligned the right resources from technology, operations, legal, third party risk, procurement, enterprise architecture, and the business lines to agree on a set of guiding principles and identify our expectations from RTP over the next few years. We collectively agreed that we were not looking for the cheapest solution, but a vendor with the capabilities to build an economically viable payment model that can handle further enhancements as the landscape continues to evolve.
The Future of RTP
Most banks today have already built the core capabilities of Zelle and RTP into their banking solutions or are in the process of doing so, and the next 12 to 18 months will help us truly comprehend the capabilities of these payment rails. We will also see innovations around customer-facing products and services in the business-to-consumer, consumer-to-business, and consumer-to-consumer sides of financial transactions.
Embracing Change to Win
Things are changing quickly in the payments space, and if you’re standing still, it means you’re falling behind. There is increased competition at the point-of-sale and a proliferation of non-banking entities in the payments ecosystem. Legacy banks fighting to maintain the status quo could find themselves behind their competition unless they are constantly innovating. To be successful in payments, it is imperative to anticipate shifts in consumer behaviors and preferences and to use these insights to build deep integrations into the way people and businesses live and operate. Meanwhile, the old rules of reliability, security, performance, and availability still hold true.