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The real-time, person-to-person payments service launched last week by U.S. Bank and Bank of America with clearXchange will service as a litmus test for whether, and how much, consumers are willing to pay for quick money transfers.
March 15 -
U.S. Bank's steep price for instant payments risks limiting the feature's appeal. Rather than overcharging, banks need to think longer-term about how to drive payments volume.
April 5 -
The debate over speeding up payments transactions should consider the necessity of allowing consumers time to rethink and abort their purchases.
May 25 -
Well-established tech giants like Amazon and Google pose a more formidable threat to banks than the thousands of startups populating the fintech market.
June 3
At least 30 countries have either implemented a real-time or near-real-time payments system or are in the midst of implementing or planning one.
In the U.S., the
As banks in the U.S. start to take the faster-payments plunge, the desire to
However, banks that charge high fees for real-time payments will risk being undercut by fintech providers that offer real-time payments for lower fees, or even for free.
Today, banks are taking different fee approaches. U.S. Bank is
However, there's already been a fintech provider offering such a service for free.
Bottom line: Banks aren't likely to gain high fee revenues from offering real-time payments. Instead, the real payoff for banks will come from protecting customer relationships and revenue streams, cutting operational costs associated with payments systems and silos and potentially gaining valuable real-time insights.
In the near term, banks risk losing existing revenue streams and customer relationships if they don't offer real-time payments. For example, as more countries implement real-time payment systems, a fintech company offering cross-border payments like
Banks could still lose revenues if they have to compete on price with a fintech provider. However, they would at least be able to keep their customer relationships and explore other revenue opportunities with those customers.
Down the road, banks can reap greater benefits from real-time payments. The savings in operational costs from offering real-time payments could be enormous. Real-time payments are an important step on the long journey to a cashless society. By moving more transactions from paper to digital, faster payments could offer major savings in transaction processing. Further, banks also spend a great deal on maintaining separate payments systems for processing ACH, check and other types of transactions. Over time, banks could consolidate many of these separate systems into their real-time payments systems, thus helping to reduce operational costs and redundancies. In the long term, these cost savings will likely outweigh any fee revenue lost due to price competition with fintech companies.
Finally, real-time payments will allow banks to do real-time analysis of transaction data, which could benefit banks and customers. Providing instant advice on how a transaction will influence a customer's finances could turn the mobile device into a
It's important to emphasize that these benefits are years away from reality. They are also contingent on other factors, such as developing streaming data analytics tools to gain instant insights from real-time transaction data. There's no guarantee that banks will gain these benefits immediately after implementing real-time payments, especially if they don't plan carefully and far in advance.
If banks fail to take these necessary steps, then fintech companies will use the opportunity to become the providers that customers use for real-time payments and financial advice.
Paul Schaus is the president, chief executive and founder of CCG Catalyst, a consultancy. He can be reached at
