Fight for Dominance Financial Intuitions vs Fintech

For decades, traditional financial services institutions have remained comfortably complacent in their business models, resistant to significant change or disruption from the Fintech and Payment Products.

Financial Institutions (FI) can no longer sit back and expect to still meet the evolving payment needs of their customers. If Financial Institutions want to be on a level playing field as their Fintech and Payment Products competition they will need to embrace new technology and partners.

In order for Financial Intuitions to not lose the fight to Fintech they need to consider really solving the 2 main areas that will enable them to retain and acquire new customers.

  1. Smart Device/Mobile Payment Acceptance
  2. Faster Payments- Instant Payments – Real Time Payments

Smart Devices and Mobile Payments

Smart Device and Mobile Payments are one of the most requested and expected solutions that Financial Intuitions should offer. Smart device usage has increased by 35% in the United States alone. Smart device payments “Tap to Pay” will continue to rise during and after the pandemic as consumer wish to use contactless (touchless) payment methods.

When Financial Institutions embrace smart devices and wallet it can lead to quicker, less cost customer acquisition. In addition embedding wallet registration during the account opening process expands the usage of branded debit/credit cards creating increased customer loyalty.

Should Financial Intuitions rush to develop and inhouse branded wallets? Research shows that this strategy is not always profitable. Let’s take Chase Bank as an example. Chase launched its branded wallet ChasePay . Although widely accepted by merchants only 6% of online shoppers chose to use it. ChasePay ranked 9th in comparison to other wallets, with PayPal being the top choice achieving 61% of usage. What was Chase to do? Keep pumping funds in to promoting ChasePay or take a hard view on if ChasePay still was the right choice for its customers. Chase ultimately decided it was more profitable for them to instead sunset ChasePay in favor of a deep partnership with PayPal’s wallet.

Real Time Payments (RTP) – What Is it?

Real Time Payments (RTP) is often referred to as Faster Payment, Instant Payments, or RTP. It is a system is composed of technology that enables instantaneous money transfer between banks and banking systems. It is a major growth for both Fintec and FIs. It is also a large investment for most FIs but and investment that is critical to avoid the FIs being taken over by Fintech and Payment companies. Many FIs were hoping that FedNow would be the best regulated solution for their Real Time Payments but with FedNow not launching till 2023 or 2024, FIs need to look hard at which firms and payment vendors can help them ensure that their platform is ready and they have the right partner to implement RTP with the least disruption to their existing services and products.

What are the major benefits of RTPs:

  • Sending and receiving payments 7 days a week, 365 days a year.
  • No need to set up a separate funding account as you can use your same account
  • Faster, as you can receive payments within seconds of the sending bank initiating the transaction.
  • Cash flow improvements as consumers and business can manage cash flow quicker and more easily.

How fast are Real Time Payments?

The RTP recipients receive their payment within seconds of the sending bank initiating the transaction. This is why consumers are wanting RTP with their FI or payment facilitator. The RTP network currently connects over 50% of all demand deposit accounts, such as checking accounts in the U.S., and is expected to reach nearly all U.S. accounts in 2020 to 2021. The power of RTP is that it can be used by many agents in the payment ecosystem. From consumers to pay merchants or Peer to Peer Payments, businesses to business payments, and government payments to vendors or other government agencies.  

How does RTP differ from ACH?

ACH is usually distributed in a batch service at the end of a day, where RTP occur instantly as the purchases are being authorized. Pricing for RTP is fixed for all FIs, Fintech and Payment Facilitators. In addition the Federal Government has set a limit of $100,000 for RTP processing.

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