It’s a new year: Resolve to get ready for instant payments!
As we welcome the new year, it’s time to get ready for making the move to instant payments. Looking back on the wide-ranging challenges 2020 brought, it’s fair to say that the move to digital and mobile commerce accelerated as a result. This, in turn, underscored the need for a payment system that can keep up.
The benefits of instant payments are real and substantial, and around the world, financial institutions, fintechs and businesses are making the investments to transform their systems and processes to reap the efficiency gains and enhanced customer service that will give them a competitive edge.
Time is of the essence, and the new year is a good time to make a resolution to get ready. This article outlines three key steps to take this year. It also provides more details about the first step, while a follow-up article will provide more details about the second and third steps. Read on to see how your organization can move forward with this New Year’s resolution.
Three key steps to get ready for instant payments
Here are three actions your organization can take this year to start preparing for instant payments.
Step one: Identify your instant payment opportunities
While financial institutions, fintechs and businesses alike can benefit from the many capabilities of instant payments, it’s important that each individual organization determine how and where instant payments can be used for maximum return. The available opportunities likely will depend on the nature of the organization, and could include efficiency gains, customer experience and customer service enhancements, elimination of pain points, and new products or services.
Step two: Review your systems and processes for instant payments readiness
As an organization identifies 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 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.
Step three: Talk to your service providers, partners and key customers
In addition to reviewing integral systems and processes, conversations with service providers, vendors and customers/clients are key. Knowledge of their plans and needs, and their knowledge of your organization’s plans, can be critical in shaping the approach to implementation.
Instant payments opportunities
As noted above, the first step in getting ready is to determine how your organization could take advantage of the benefits instant payments offer.
With these benefits in mind, here are some opportunities to consider:
Are a lot of manual steps involved in how your organization handles invoices, and initiates and reconciles payments today? Does it take a lot of time and effort researching and resolving errors and discrepancies?
For example, financial institutions that mail loan payment statements and businesses that mail invoices to their customers may be able to integrate instant payments’ e-invoicing capabilities and automated inclusion of remittance details into their accounting systems. In doing so, they can automate many invoicing, remittance and reconciliation processes.
Customer experience/service enhancements
How many customer calls does your organization handle concerning payments that went awry, possibly because the customer didn’t provide the correct remittance information, the payment bounced due to insufficient funds, or for a host of other reasons? These may be opportunities to make the payment process more seamless for your clients and customers.
For example, billers can use instant payments to give customers the ability to time their payments with the ebb and flow of their account balances while ensuring the correct remittance information is integrated with their payments. Insurance companies can delight customers by making on-the-spot claims payments, and merchants can create a more customized check-out experience for their customers. In addition, financial institutions can give customers peace of mind by providing immediate payment status and confirmation notices, along with instant funds availability.
Elimination of pain points
Take a look at your organization’s payment-related exception processes; these might be clues to pain points that could be addressed by leveraging instant payments capabilities. For example, are customers calling frequently to resolve payment issues? Are there payments that require special, even manual, handling?
Instant payments can be a game-changer for time-sensitive payments like emergency payroll. For large merchants, instant payments could enable automation of small, infrequent vendor payments that are too costly to automate using EDI messaging tools. In the same vein, financial institutions and their small business customers could use instant payments to send e-invoices via a Request for Payment (RfP) message to eliminate online banking/bill pay transactions that end up as check payments because the business is not in the biller directory.
New products and services
Your clients and customers may not be clamoring for instant payments per se, but are they signaling they’re looking around for ways to make payments work better, for example, by moving to digital wallets for P2P and even C2B payments? Are they looking for tools to manage cash flow better, automate payment processes, serve their customers better or eliminate pain points?
Financial institutions, fintechs and software/service providers can start by thinking about new products and services that could address the above list of opportunities for their customers and clients. For example, financial institutions and accounting software providers can use instant payments as a foundational component of a new service or product such as e-invoicing and remittance detail that provides the cashflow control, security, transparency, immediacy and automated processing capabilities customers are coming to expect. Similarly, fintechs and service providers may see opportunities for enabling their small and midsize financial institution clients to offer new instant payments-related services to their customers.
Stay the course
With any New Year’s resolution, getting encouragement along the way can be helpful in staying on track. And that is what we plan to do over the course of this year, beginning with the next article on steps Two and Three. We also plan to publish more detailed information throughout this year about how to get ready, as well as articles on specific use cases for instant payments. Stay tuned!
Learn more about instant payments and the FedNow Service, an instant payments infrastructure being developed by the Federal Reserve.