Get ready for instant payments: The next steps
Part one of our “Get Ready” series, It’s a new year: Resolve to get ready for instant payments!, outlined three key steps financial institutions, fintechs and businesses can take in 2021 to get ready to take advantage of instant payments’ benefits, including:
- Step One: Identify your instant payment opportunities
- Step Two: Review your systems and processes for instant payments readiness
- Step Three: Talk to your service providers, partners and key customers
That article also provided a more detailed description of the potential opportunities that organizations might consider in Step One. To help you continue moving forward with your New Year’s resolution, this article provides more details about Steps Two and Three.
Review your systems and processes for instant payments readiness
As an organization works through Step One and begins to identify opportunities, the next step is to consider how instant payments will be integrated into its processes. Unlike most other payment types, instant payments are processed 24 hours a day, seven days a week, all year long, and they are posted in the payer’s and payee’s financial institution accounts within seconds. These “always on,” transaction-by-transaction and rich messaging characteristics of instant payments serve the needs of digital and mobile transactions well, but they also mean systems and functions that are designed around the “business day” and batch processing may need to be adapted.
The list is potentially daunting both for financial institutions and their business customers, particularly if the long-term goal is digital transformation. However, implementation doesn’t have to start with a comprehensive overhaul. In fact, most organizations will take a more modular, step-by-step approach to reduce the scope and complexity of implementing instant payments. In reviewing systems and processes likely to be affected by instant payments, the following considerations can aid in keeping the scope of needed changes, and associated risks, manageable:
How important is it to be able to both send and receive instant payments at the outset versus starting with receive-only capability?
Implementing only the ability to receive instant payments can reduce the scope of the needed adaptations initially and enable organizations to “get their feet wet” in establishing 24x7 operations and related internal compliance and other procedures. In this way, financial institutions can begin to familiarize customers with the benefits of instant payments, and businesses can begin to take advantage of receiving payments on weekends or after banking hours. On the other hand, offering send capabilities may be important to certain types of customers or use cases, and not doing so at the outset could limit the value of the service for a time. Either way, planning for send capabilities will be important to ensure that the full benefits of instant payments are available as soon as feasible.
Which features and message types need to be supported initially, and which, if any, can be integrated later?
For example, if Request for Payment (RFP) and remittance data capabilities are not key to realizing initial benefits from instant payments, they can be integrated subsequently, as businesses adapt their systems and demand for the use cases they support grows. On the other hand, providing final confirmation of payment posting may be a valuable feature for business customers that initially are not able to update payments in real time on their systems.
Which account types should be enabled for instant payments?
This is particularly relevant as financial institutions – and their business customers, for that matter – consider ways to manage initial scope and the risks involved in a new service. It also includes consideration of the conditions they may want to set (such as maximum transaction value). Communication between financial institutions and their business customers is helpful in planning which transactions to make eligible initially.
Which functions must be handled in real time, and which can be handled asynchronously?
Clearly, certain payment operations required to move funds and make them available, as well as fraud prevention functions must be handled in real time. In contrast, a variety of accounting functions likely can be handled without real-time integration; however, it will be important to decide how to handle incoming payments that occur off hours for these systems.
What should be automated?
It may be possible to moderate additional staffing requirements by automating processes to handle payments. For example, implementing fraud monitoring software that can support automated decisioning on which payments to release and accept in real time could be key for financial institutions. For businesses, accepting RfP messages could be a way to allow payables systems to automatically validate and determine whether payment can be made in an automated fashion. For example, the FedNowSM Service will help prevent social engineering by requiring a financial institution to use the name of record and other particulars for the sender of an RfP.1
Talk to your service providers, partners and key customers
In addition to reviewing integral systems and processes, having conversations with service providers, vendors and customers/clients is key. Knowledge of their plans and needs, and their knowledge of your organization’s plans, can be critical in shaping the approach to implementation.
- Businesses need to know when their financial institution(s) and core treasury management, A/R and A/P software systems providers can support instant payments and associated message capabilities. In turn, all these partners benefit from knowing their customers’ interests and plans for instant payments adoption.
- Financial institutions need to know when their software systems vendors/partners can support instant payments and message capabilities. Knowledge of core banking system and payment processing providers’ plans is essential, and these providers benefit from knowing that their clients are prioritizing instant payments.
- Businesses and financial institutions also need to know what their suppliers and business trading partners’ plans are for adopting instant payments. Are these partners willing to accept and/or send RfP messages? Are they willing to consider special terms, such as discounts, for the benefits of receiving automated remittance details and payments instantly?
- And all stakeholders (financial institutions, businesses, fintechs and software systems providers) need to know their customers’/clients’ needs. Customers may not know about instant payments, but conversations with them about their needs and challenges could signal opportunities for new products and services to offer them, or ways to improve their payments experience.
Keep on keeping on
The three steps outlined in these two articles will help financial institutions, businesses, fintechs and others identify opportunities and then map out their instant payments value chain by focusing on key internal processes and key external stakeholder relationships. These activities, in turn, will facilitate the development of a roadmap for instant payments adoption. But they require time and focused attention, which is why it’s important to get started early in this new year.
Instant payments are already here and are offering game-changing benefits to early adopters around the world. In addition, the FedNow Service is on the horizon, and will be a platform for enabling the kinds of innovative use cases described in these and other articles. As this year unfolds, be on the lookout as we provide more details on new use cases to consider and how to get ready for instant payments.
1FedNow is a service mark of the Federal Reserve Banks.