A small-business owner sits in her office on a Saturday afternoon. Her company is starting a big road project Monday, and she needs to replace broken equipment today so it's ready when her crew gets to the job.
She has a line of credit with her financial institution, and she wants to access that money and move it right now. But under her bank's payments system, she really can't do anything with her money until Monday.
She's frustrated. She knows there are plenty of lending startups that could put $50,000 into her checking account in 15 minutes, no matter the time or day. But her money is in the bank.
That bothers John Macaluso, who spends the majority of his time working with financial institutions to devise their payments strategies. When Macaluso, a Fiserv senior vice president, talks about payments shifting to real time in financial services, he thinks about that business owner.
Her problem illustrates not only the need for faster payments but also the breadth of the transformation.
"How do financial institutions measure up to that?" Macaluso said. "In the next generation of payments, financial institutions will move money in real time for consumers and businesses. Making that change is the challenge right now."
But it's a challenge people expect their financial institutions to overcome, said Whitney Stewart Russell, a Fiserv senior vice president who focuses on digital payments strategies. Real-time, 24/7 money movement, immediate credit for payments and mobile engagement fueled by intuitive use of consumer data are becoming the baseline expectations.
"We're talking about real time and its implications," Stewart Russell said. "If you can get diapers delivered to your doorstep the same day you order them, it's ridiculous that you can't move money the same day. Enabling that movement for consumers and businesses is a differentiator."
Online and mobile banking changed how people and financial institutions engage, and that digital transformation continues to influence massive changes throughout financial services. Payments is the next transformational wave for financial institutions, and it holds the potential to be even more significant than digital transformation, Macaluso said, because it will prompt changes across all operations.
"The digital transformation let financial institutions cast a wider net for consumers and allowed for cost savings in processing," he said. "The payments transformation will force true change to the most expensive part of the financial institution: the back office."
Real-time money movement inevitably will change how people interact with their financial institutions and how back offices operate.
When it comes to payments, everything in financial institutions traditionally has been based in silos, whether it's ATMs, ACH, wire or check processing, said Trevor LaFleche, a Fiserv senior director who has been on the front lines of the real-time payments transformation in Europe. Those silos will break down with real-time payments.
"When you start looking at how payments transfer, those resources become more fungible," he said. "Processing now really looks the same no matter what type of payment. One clerk can operate across all payment types. There's just more coverage and effective use of resources."
That new reality, LaFleche said, will drive the need for payments infrastructure modernization because, without that change, delivering the ideal experience becomes more difficult.
"In much of the rest of the world, markets are moving to a single infrastructure for real-time payments," LaFleche said. "If you're sending a real-time payment, it doesn't matter where it's coming from or going to. Digital payments are the equivalent of cash."
That's where payment hubs enter the conversation. With real-time payments, the time from initiation to availability of money takes seconds rather than minutes or hours. When all of the processing and network steps are considered, each must be completed within a second at most, including validation, accounting and fraud detection.
Payment-hub technology slots into that space because it enables the management of all noncard payment types on a single platform and promises better risk analysis, faster settlement, lower routing costs and a real-time view of transactions. Stewart Russell sees it as a way to break down silos and allow the back office to manage money movement from multiple directions.
In a real-time environment, the back office will need to orchestrate workflow from all channels, whether mobile or call center. It will need to manage commercial and consumer payments through all applications, from person-to-person (P2P) to ACH, and integrate multiple platforms, including biller networks, lending and compliance.
And it's all within the framework of banking becoming a seven-day, 24-hour, real-time venture.
"How do they staff it? How do they look at risk?" LaFleche said. "This is a change in business operations and processes, and that's significant. It's why we're investing a lot of time into helping clients deliver new payment propositions."
Or, as Macaluso put it: "When you move to a real-time world, that's where the game changes."
Succeeding at the game, he said, depends on finding the right place to play.
"It's not about having your payments strategy," Macaluso said. "It's about having your business strategy, and payments are a part of it."
There may be no single correct strategy for employing real-time payments, and mimicking what others do won't necessarily work. Financial institutions need to understand their specific audiences and be creative in how they deliver a unique experience that meets consumer and business expectations.
"Real-time payments is a frictionless channel," LaFleche said. "Putting together the whole offering and explaining how it makes sense is what financial institutions have to do. And you have to make sure to capture the value. If you understand the whole scenario, that likelihood goes up."
For the past several years, LaFleche has watched those scenarios play out in multiple creative ways across Europe's regulatory-driven market, which is leading the way in real-time payments. The market-driven U.S. environment is more complex, he said, leaving financial institutions with all the real-time puzzle pieces spread out on the floor and the challenge of figuring out how they fit together.
With Fintechs such as Venmo and Kabbage flooding the market with a nimbler approach to everything from P2P to gig payments, LaFleche said U.S. financial institutions should look to their own business models and strengths to build differentiating real-time payments strategies. It's becoming more critical to work with a partner that is connected to every link in the chain and can help identify how to match long-term strategies to the complexities of a rapidly changing U.S. system.
A sense of strategic urgency will have to factor in to any real-time approach U.S. financial institutions choose, LaFleche said. It takes time to roll out real-time payments because it's a network and all the connections have to move. But this is the moment to fit the pieces together and build a creative strategy.
"It's like the telephone," he said. "If there's only one, it's boring. If there are two, it's still boring. You need an entire network to make it useful, and it really only gets valuable when you reach 96, 97 percent saturation. That's when you see an inflection point when you can reliably make instant payments to anyone."
The rise of Zelle® in P2P payments shows the power of a real-time network once it reaches ubiquity with the support of major financial institutions. John Thomas, executive vice president leading U.S. payments and U.S. data for TD Bank, said Zelle is helping TD deliver a real-time experience that customers love.
"Before Zelle, banks weren't losing the P2P battle; we had lost it," he said. "I'm a big believer that – in any service vertical – the best way to stave off competition is to get it right for your customers in the first place. We knew we had a clear problem with P2P. At TD, we now have two years of experience with Zelle and P2P under our belt."
In the U.K., LaFleche said, it took about four years for real-time to reach an overall inflection point. The U.S., while advancing in some areas of real-time, has the challenge of moving a long tail of financial institutions. That means an insurance company might want to remit, but it can't necessarily send money instantly with all institutions.
Financial institutions won't immediately meet every real-time expectation for everyone. But Thomas said successful strategies depend on forming the right partnerships, solving the most critical problems for people and understanding that some areas of progress will be measured in months, while others are measured in quarters or years.
"As a company and as an industry, I think you'll see us moving very, very quickly into some of those consumer spaces where it's crystal clear we've lost the interaction," he said. "I think in other spaces, you'll see us move more slowly and deliberately because it's not crystal clear what the customer problem is that we're solving."
Certainly, financial institutions should act quickly to stay ahead of the real-time wave, LaFleche said, but they should balance that by acknowledging it's also a fundamental re-engineering of the way they look at payments.
"I think everybody," he said, "is slowly realizing, 'If we don't do real time, we're going to be left behind.'"
Zelle is clear evidence that financial institutions in the U.S. already are investing in real-time payments, Stewart Russell said. That, in turn, has opened the door to other real-time possibilities, giving the market a push to expand its mindset that it hasn't gotten elsewhere.
There are benefits to real-time beyond P2P, including using data to better understand consumers and businesses and optimize their experiences.
"Financial institutions probably know more about people than anyone other than their doctor or spouse," Stewart Russell said. "But traditionally, institutions haven't used all the transactional data at their disposal."
That is changing, she said. Say a consumer has set up alerts for when an AT&T bill payment is due. The consumer gets the alert while at the mall. Instead of using a smartphone to pay the bill as usual, the consumer chooses to pay at a nearby AT&T store.
An intelligent system realizes the bill has been paid and stops the alerts immediately. It also can learn from that activity, using the interaction to update the consumer's information and give guidance for future actions.
"Financial institutions are now thinking about real-time in a more holistic way than just a snapshot application such as P2P," Stewart Russell said. "They are considering a longer-term viable strategy."
Finding the right strategy, though, will continue to be a challenge for financial institutions. With so many payments options in the market, it can be confusing.
"Financial institutions are still deciding where the different payment rails fit together or compete," she said. "That's why we're focused on helping clients identify approaches that fit their strategies and goals."
P2P is the first rail, but Macaluso said financial institutions will incrementally embrace the payments hub over time. He expects the entire payments transformation to real time in the U.S. will take place over the next two to three years.
That will include even more sophistication around auto-decisioning and more use of artificial intelligence and chatbots to manage 24/7 money movement and reconciliation.
It also means a fundamental change in how financial institutions handle payments. Right now, multiple people at multiple levels manage payments, depending on the amount and type. If it's $50, it can move through an ACH check. If it's $50,000, it would move through wire.
"But when we move to the next generation of payments, we can't have those requirements in place," Macaluso said. "We can't move money in real time with the same security, risk management and rules of an older system."
The payments transformation to real-time will lead financial institutions to rethink their strategies in terms of technology, staffing, partnerships and how they can uniquely serve their specific audiences. The twin roles that define financial institutions – managing and moving money – are not changing, but how that happens is constantly evolving.
"Any banking activity that consumers and businesses want to do can and will occur 24/7," Macaluso said. "And to be successful, financial institutions will need to support real-time capabilities because Fintechs are beginning to support it today. And they need to use technology to accomplish it because they can't use people 24/7."
But for consumers and businesses, it's a far simpler equation: People want to move their money how they choose when they choose, and that includes small-business owners who want access to a line of credit on a Saturday afternoon.
It's up to financial institutions and their partners to manage the complexities and pave the way.
"The payments transformation is so fundamentally significant," Macaluso said. "With the digital transformation, we opened up another lane. With payments, we're changing the asphalt."