Volante Technologies on implementing real-time payment strategies

The adoption of immediate, instant or real-time payments (RTP) continues to gain pace around the globe. More than 40* countries are reported to be live with instant payment schemes and another 13* countries are understood to be in a planning phase.

This adoption has been driven by financial institutions, merchants, consumers and society as a whole, recognizing the benefits of enhanced visibility into payments and better cash management which helps businesses better manage day-to-day operations through improving transient liquidity.

However, enabling RTP can be costly both in terms of money and time. Existing systems are not designed for real-time notification or clearing, nor are they geared towards cross-border RTP marketplace synergies with third party payment providers.

Volante Technologies are established leaders in the RTP field. They were integral in enabling the first RTP payment in the history of the United States (with Bank of New York Mellon and The Clearing house in November 2017) and are now exploring other options including cross-border RTP.

I sat down with Nadish Lad, Global Head of Payments Products and Vikrant Sant, Payments Product Manager, Volante Technologies, to discuss the major advantages of, and blockages to, RTP implementation, and the fate of the banks.

So, tell me a bit about Volante’s history in implementing RTP strategies.

Nadish Lad – We have a long history in the payments world. Prior to our payments applications, we were already a part of instant payments and real-time payments across the world. The reason is that we have a number of global and domestic financial message standards which banks have been using within their RTP processing. As an extension of those real-time payment implementations, Volante gradually moved into the business processing applications space. Of course our big business application or, overarching payment hub RTP implementation, was with BNY Mellon.

It is a very strategic implementation from our perspective, primarily because it was the first new payment type in the United States in over 40 years. The bank wanted competitive advantage by being the first in the industry and Volante has always been known for delivering business agility. That is why we were able to collaborate so effectively with the bank and process the first RTP payment in the US through our VolPay Hub.

Subsequently we’ve been involved in SEPA Instant, a big initiative in Europe, and are in dialogue with a lot of banks looking to implement SEPA Instant. We are also looking forward – at cross-border real-time payments and have developed a strong proposition around it.

There’s been an increased adoption of RTP strategies of late, with more than 40 countries reported to be live with instant payment schemes and another 13 countries understood to be in a planning phase. Why is this?

Vikrant Sant – With changing dynamics in this evolving market and technological advances, the focus is heavily tilted towards customer satisfaction, and in many cases the target is to achieve best in class customer service. The customer is king now. Everything other than payments was moving towards “Instant” model, viz. messaging, chats, emails, booking an appointment, etc. and it was just a matter of time before it came down to Money Transfer as well. All parties, including law makers, regulators, and financial institutions, are focusing on simplifying processes and providing happy and smooth experiences to the end consumer. Introducing Real-Time Payments is one major step in the Money Transfer world that provides direct benefits to the end customer, thereby providing much more than just a satisfying customer experience.

When the UK implemented Faster Payments about a decade ago, it was mandated by regulators, so banks had to adopt to it. However, that’s not the case everywhere. When one country started this service and other parts of the world started seeing the benefits, especially customers, it automatically put the pressure on financial institutions in other countries to provide such services. It was also important to remain competitive and not fall behind the others. Of course, technological advances today have also played a big part in making real-time payments implementations possible.

We believe this is the major reason behind why we are seeing increased adoption of real-time/instant payment schemes across the globe.

What technical advantages do RTP strategies offer over existing systems? Will they eventually become universally adopted?

Nadish – This is a very broad question in terms of strategy. From our perspective, this is an opportunity for banks to realize their digital strategy. What we note is that people generally look at RTP as a payment processing and a settlement mechanism. It’s become increasingly clear that one should not look at it as a payment or a settlement type, but as a customer journey. The whole world is going digital – people want information anytime, anywhere with choice and flexibility.

RTP helps you to realise that from a user experience point of view. If you start looking at all the global initiatives that are taking place such as PSD2, Open Banking, and so on, there is a clear opportunity to redesign your user journey. If you start tying these things to a customer journey or user experience, then you realise that RTP can actually enhance your digital proposition for the end customer. This is where we think, for example, Open Banking will play a big part within RTP.

Real-time payment strategies enable you to focus on this – moving from batch processing into real-time processing, offering the opportunity to change your technology, to be available 24/7, 365 days a year, enabling APIs on the front end and enabling sophisticated interface mechanisms in middle and back office systems. It’s a chance to change your technology landscape and this kind of transformation is possible without the need to ‘rip and replace’ existing legacy systems.

What current blockages are there to adopting and planning new RTP strategies?

Vikrant – Looking at this from a global perspective, not every country has a regulatory body which is mandating the adoption of real-time or instant payments. The UK has a regulatory requirement for real-time payments, but if you look at the US, there isn’t a regulatory requirement. In the US it is up to banks to compete with each other by offering customers real-time services.

Another aspect is to have a favorable business case from a return on investment perspective. As legacy infrastructure doesn’t support 24×7 models, some investment is required to make the systems available 24×7. Not only this, but customer Operations support models are also expected to be 24×7 for real-time payments.

Not all countries have the infrastructure to support real-time settlement of money between two banks. Where the money is being credited to the beneficiary account instantly, the bank would receive the money from a remitter bank in a traditional net settlement model. This puts banks in a situation where there is additional pressure on liquidity exposure due to real-time payments services.

As a result of these challenges, in countries where the adoption is not mandated by regulators, banks are in a ‘wait and see’ mode for somebody to take the first step in launching a real-time payment service.

Nadish – It’s interesting if we look at the history of real-time payments. Just to take an example from the UK and US, the UK approach to real-time payments was from a retail perspective, whereas the US has taken more of a B2C approach.

One of the challenges, for a bank, is to make sure they identify the business case based on their customer base, the region, whether it’s retail focused or B2C focused. To be frank, both these use cases differ, so this is where banks need to take a stance on their strategy, their vision, their target, to guage how they’re going to build their business case. From what we’ve seen, the best strategy for banks is to be aggressive in their adoption to increase their competitive advantage.

Challengers and smaller fintechs have size on their side, meaning they can be agile and adopt new technology relatively quickly. Are banks being held back by their legacy technology and size? What can be done to redress the balance?

Nadish – Smaller banks, challenger banks – looking at the UK again – are entering the market with a fresh perspective and brand new systems, so it’s much easier for them. The bigger banks have a lot of legacy infrastructure, and they’re conscious of that challenge. So what we are seeing is that banks are working increasingly in partnership with fintechs.

This was evident in BNY Mellon’s comments on working with Volante in a collaborative partnership and we are seeing this more and more in our tier one customer base. Of course their size and their legacy platforms do hamper them, but what they are doing is partnering with organisations like Volante to realise and grow their strategy with agility.

We always offer the option to add RTP strategies to existing payment systems, avoiding the route of ripping and replacing infrastructures – ‘rip and replace’ is a risky approach and could easily disrupt a bank’s existing business. Banks can opt for a coexistence strategy, i.e. integrating newer technology that is capable of dealing with new initiatives such as RTP. Therefore, when it comes to implementing RTP capability within a bank that has existing payment processing systems, we do this successfully by augmenting their infrastructure with RTP capability.

Vikrant – Take cross-border real-time payments, for example. We have ideas that we are working towards collaboratively with our clients. Domestic real-time payments are moving forward and maturing, but working with organizations like us, banks are already looking at cross-border RTP. People talk about blockchain, and so on, but there are multiple ways that this can be achieved. Our ideas are growing through our customer base, and by working alongside fintechs, the banks are now looking at these future initiatives. It is a good example of how banks can work collaboratively with fintechs to actually chalk out a vision for the future.

[*Source: Instapay].


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