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EXCLUSIVE: “No time like real-time” – Rachel Hunt, Volante Technologies in ‘The Fintech Magazine’
The US payments landscape is being driven by a unique set of circumstances that will have deep and lasting impact on how business gets done. Volante’s Rachel Hunt says banks must move fast – in more ways than one!
Back in 2019, Helmut Wacket, head of division at the European Central Bank, told a gathering of payments leaders in Germany that the business case for banks to adopt real-time payments was simple: “The business case for banks is to stay in business!” he said.
Notwithstanding the challenges of legacy technology, banks heeded Wacket’s implicit warning and have adapted and adopted real-time rails. It’s still a work in progress: the European Commission has a vision to create an interoperable network of instant payment schemes cross-border and it’s not satisfied with current levels of service. In October last year it put forward a proposal that would compel all payment service providers (both inside and outside the EU) that offer transfers in euros to be available 24 hours a day, 365 days a year.
The Commission hopes that such a move will also drive open banking adoption.In the United States, there’s still all to play for when it comes to real-time, although here much of the innovation around instant payments is being driven by the market, not legislators. There are a lot of moving parts to keep track of in the US payments space right now, not least the institutional duopoly of The Clearing House and the Federal Reserve locked in a race to provide instant domestic and instant cross-border services.
The Federal Reserve Banks’ FedNow Service to facilitate nationwide, round-the-clock reach of instant payment services by financial institutions is scheduled to go live between May and July 2023. Then there is Swift’s transition to ISO 20022 to consider, which all providers in the US will have to comply with by 2025. And there are signs that the US is finally loosening its grip on paper-based cheques (both B2C and B2B) – a move accelerated by the pandemic.
Volante, a Cloud-based, low-code payments-as-a-service provider, aimed at established institutions looking to engage with what it calls ’payments modernisation 2.0’, is right at the heart of this evolution. Operating across not just North America, but also LATAM and EMEA, it enables customers, including many mid-tier banks with limited resources, to rapidly bring new payments products and services built on top of instant payment rails to market, fast. Once that real-time door is open, the value-added solutions it unlocks for customers are limitless, says Rachel Hunt, VP for strategy and growth at Volante.
“Instant payments introduces a complete business change in the way that the banks interact with their customers. It’s not just the introduction of a new method of payments; it has a fundamental impact on the way that you run your business, and how you service your customers.
“It’s always a journey towards instant payments, because there are so many parts of the organisation that are going to be touched on: it’s the people, the processes, and the systems you have in place,” she adds. “And what’s really exciting in the US right now is that we’ve reached a hockey-stick moment.
“The pandemic clearly showed that we had to be digital, that it was important to have real-time information and real-time payments to navigate everything we’ve gone through, and make sure organisations could continue to operate. If you want to keep up with all the change that’s going on in the US, or even globally, then you have to think about real-time.”
Following the pandemic, same-day automatic clearing house payments – once seen as a good enough proposition by banks – were no longer viewed as such by their corporate customers
“One, there’s a fee, so there’s a cost to that proposition. That isn’t right,” says Hunt. “And second, it’s not real real-time, which is important for a number of reasons, not least liquidity management. Instant payments (mean) you have the visibility to be able to manage your liquidity better.”
In the last couple of years, there has been an uplift in the number of federally insured US depository institutions using The Clearing House’s Real-Time Payments Platform (TCH RTP). Banks joining the scheme are now beginning to think more about the use cases and the value-added services they can build on top.
“We’ve been a key player in that market, and, with some of our customers, have processed some of the first TCH RTP transactions in the US,“ says Hunt.“Although there are more than 100 participants in TCH RTP, with FedNow we’re talking about instant payments reaching scale in the next few years in the US. There’s a real opportunity to bring real-time payments to tier 2, 3, and 4 organisations.”For her, the billion dollar question going forward is how can scalability of real-time payments be achieved with accuracy and security across all institutions, but especially among those mid-tier banks, which face challenges on a number of fronts, she says.
“One is the skills available in the market. We’re in an incredibly tight environment, in terms of skill sets and people. And then many of these banks are asking ‘can I really spend this investment building my own teams, building the scalability, the resilience – all of these things that you have to have with real-time payments – in house or should I partner with a vendor?”
“There’s going to be some convergence between wires, ACH, and instant payments and it’s really going to be driven by customers’ preferences”
Hunt would argue the latter for a number of reasons, not least that by choosing to build themselves they often end up settling for the minimum viable solution which does not allow the organisation to fully benefit from the kind of transformation that real-time payments systems represent. Indeed, many have come to the same conclusion; Hunt says that as-a-service, is now where the majority (80 per cent) of organisations are focussing their strategies as they receive and consume payments software.
“When we talk about SaaS, or PaaS, people always mention cost first. (Yet) there are economies of scale that come with such a service: the vendor invests in that environment, it’s secure, it’s tested, it complies to the regulation,” says Hunt. “It’s already built for scale, for resilience, for availability, and the right partner is going to bring you the next set of innovation requirements that are going to happen. Because we’re no longer in a world where the new methods of payments happen once every 20 years. The new rails are one thing, but then there’s the value-added services like Request for Pay/Request to Pay and questions around how you are going to embed that offering within the broader payments value chain.”
She uses Request to Pay in Europe as an example of how a payments service processed on a real-time rail can have a big impact on both a bank’s corporate and retail customers.
“If you think about your electricity, gas or water bill and you had your utility provider saying, ’I understand it’s difficult times, your bill is $100, but actually we’re sending you a Request to Pay $50, $70, $80, whatever you can afford to pay at this particular time,’ then, from a consumer perspective, you think, ’OK, that’s really nice’. It’s about understanding what your core service offering is to your customer base – can you offer a better customer experience to the end end customer?”
Hunt also sees opportunities to incorporate an instant pay use case into the buy now, pay later space.
“BNPL is still very much reproducing a credit card experience,” she says. “It’s sort of based on account-to-account, but it’s not that seamless, it’s not as instant as you’d like it to be. So, if you could start thinking about BNPL with a bill pay, instant payment sort of use case, that would also be interesting. It’s about delivering the right customer experience, at the end of the day, whilst creating a little bit of efficiency in getting those payments.
“In the US, there’s a huge bill pay industry that is available, but there’s less focus on open APIs, and being able to do the account-to-account in a consistent manner. Again, there’s a big opportunity to improve that experience, offer different opportunities and services in the bill pay, if you start attaching APIs and instant payments.”
The emergence of the as-a-service as an alternative to a licensing model (based upon a set contract) coincides with ‘a huge amount of convergence happening in payments’, says Hunt. She urges companies to think about how their payment flows will evolve over time. For instance, you might continue to receive some payments through ACH bulk files, ‘but the best way is to send them through the real-time rails,’. This is especially true of contractors, and individuals operating in the gig economy, for example, where swift payment resolution is a basic requirement.
“There’s going to be some convergence between wires, ACH, and instant payments,“ Hunt observes “and it’s really going to be driven by your customers’ preferences.“ It all comes down to smart routing.“As individuals, or as corporates, we really don’t care which rail the payment is being used, so long as my payment is going to go through, I have visibility, and it’s based on my own risk preferences, or time requirements,“ she says.
Hunt is particularly excited about the possibilities of adding value in the B2B payments space and how banks can use it to enhance their relationships with corporate customers.
“An example would be how can we attach a Request to Pay with an e-invoice, and make that seamless?” she says. “Cross-border e-invoicing is a real headache. There are some standards, but they vary and everybody uses different financial messages. How can banks create a really nice experience, where we join up instant Request to Pay and e-invoicing and make that seamless for a corporate that’s trying to do international payments? “
That’s why it’s so exciting to start seeing linkages between instant-payment central infrastructures cross-border as has already happened in Asia, with Singapore, Thailand, Malaysia signing MOUs, and linking up instant central infrastructures. We’re starting to see it across Europe and the US. That doesn’t mean that SWIFT doesn’t continue to be an important part of those transactions for cross-border, but it gives an alternative. It’s just a really interesting development that’s exciting for the industry. Ultimately, flexibility is what many customers have been looking for.”
This article was published in The Fintech Magazine Issue 27, Page 19-20
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