New research from research and consulting firm Ovum reveals North American commercial banks are increasing their investment in real-time payments (RTP).
The rise of real-time payments in North America, commissioned by Icon Solutions, is based on responses from more than 7,000 CIOs and other senior IT decision makers.
The study shows that while implementing RTP infrastructures later than global peers, U.S. and Canadian institutions are looking beyond the basic implementation of new payment rails. Instead, banks are also investing in services such as artificial intelligence (AI) and mobile banking based on real-time account data, recognizing that RTP is an important strategic opportunity ahead of open banking.
- North American commercial bank IT spending set to increase by $3.3 billion growing to $17.1 billion per year by 2021
- 50 percent of U.S. and 40 percent of Canadian banks plan to further increase investment in RTP systems on a year on year basis
- Spending on RTP cited as top three priority by 25 percent of U.S. institutions and 20 percent of Canadian institutions
- Wider investment in ACH and wholesale payment platforms is also set to increase with 40 percent of US and 20 percent of Canadian banks set to boost spend
- Banks also investing heavily in AI, mobile banking and open APIs, underpinned by RTP infrastructure, to enhance services, differentiate and prepare for open banking
- In the short term, banks are investing in real-time services ahead of market adoption to effectively compete for the business of their commercial clients.
- In the long term, RTP infrastructure will become the foundation for banks transitioning into an open banking environment.
“The move to RTP infrastructures has its roots in consumer banking, but commercial banks will also be affected by the changes,” report author and Ovum principal analyst David Molony said. “Many have undertaken significant investment to be able to comply – 28 per cent of US commercial banks are increasing their spending on this area by more than 6 per cent in 2018 – but the more far-sighted are also looking beyond basic compliance towards what product and service enhancements they will be able to develop for their corporate customers.
“They also recognise that real-time infrastructures are part of wider structural changes in the sector and are investing in APIs to address the gathering momentum of the move to open banking.”
The top areas for IT investment – cash management services, liquidity risk management, mobile banking and on-line banking – are all underpinned by RTP as a foundational capability to address various existing service limitations.
Cash management services – a top priority for corporate customers – is consequently a major focus for investment. For U.S. institutions, real-time cash positions top the list, with 44 per cent stating this within their top three priorities, along with direct integration with clients’ ERP or treasury systems. Canadian banks are also prioritising real-time cash forecasting (40 per cent) along with a single view across bank relationships (40 per cent), for their commercial clients.
In terms of client-facing services, banks, desperate to break from the stuttering world of batch processing, must implement RTP to unlock real-time transaction data and unleash a powerful wave of real-time services.
For institutions in the US, access to real-time information, analytics and other services based on transaction data is paramount. In Canada, the focus is concentrated more heavily on providing access to RTP, along with enhanced services via digital interfaces.
Canadian commercial banks, and to a lesser extent US banks, similar to those across the rest of the world are taking steps to prepare themselves for open banking. All Canadian, and 56 per cent of U.S. institutions are embracing an API strategy, with 80 per cent and 56 per cent respectively planning to integrate third-party services into their propositions.
Both banks and third parties need access to real-time customer information to deliver compelling offerings. The investments being made in RTP and open banking imply a future convergence of commercial and retail payments as banks look beyond traditional payments systems.
“The strategic investment in the deployment of advanced RTP capabilities beyond core payments systems provides an opportunity for banks to widen their service offering to corporate clients,” Icon Solutions SVP for North America James Methe said. “This research also highlights how the adoption of real-time payments is imperative in the face of a rapidly changing landscape that requires banks to be more agile to in the face of widespread systemic change.”