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Payments modernization in the age of acceleration

  • July 21, 2023

The real-time payments revolution is barreling toward the banking industry, providing significant opportunities to create innovative product solutions for customers in the rapidly evolving payment capabilities landscape. The Federal Reserve’s FedNow system, initially released in July 2023, is a fast-follower to The Clearing House’s RTP Network, currently adopted by over 285 financial institutions (FIs). According to PwC payments research, cashless payments growth in the US and Canada are projected to nearly double by 2030.

In this article, we explain the need to modernize payment infrastructure and capabilities in the age of instant money transfers, and provide short- and long-term strategies for capturing these payments opportunities.

Payments revolution is about more than speed

Instant payments in the US market, including FedNow and The Clearing House’s RTP rails, are re-defining the speed of money transfers and account settlement today. With transactions settling in seconds, instant payments meet the expectations of customers who want the capabilities and innovation of new digital products while retaining the reliability and assurance of legacy payment transfers. Speed, however, is only one part of the value proposition of instant payments.

The largest opportunity presented by instant payments is creating long lasting client relationships by gaining insights and applying analytics to the payment patterns and behaviors of customers. With instant payment rails powered by ISO 20022 - a structured, data-rich message format that is becoming the global standard across banks and corporate clients - banks can realize enhanced payment insight and analytics for both institutions and customers, and increased operational efficiencies, straight-through processing and error reduction. These improvements allow FIs to glean real-time information on how their payments are affecting their cash balances and budgeting goals, and enable quick monetary decisions when opportunities, or problems, arise.

Corporate clients, having seen the benefits of real-time peer-to-peer payments, are now seeking the same digital functionality for their business. Small and large corporations alike are seeking banking relationships that help them cut costs, improve cash management and make account reconciliation faster and more efficient. The introduction of instant payments allows FIs to use richer data to offer tailored solutions to their corporate clients, including invoicing, early wage access and more.

Many institutions are reaching a strategic impasse when considering how to implement a modern, real-time payments system. To stay competitive in the rapidly evolving financial landscape, banks may consider a strategic approach that combines internal systems development and enhancements, API development, partnerships and PaaS outsourcing. Let’s look at the tradeoffs of those approaches.

Building solutions in-house offers differentiation in a commoditized market, avoids the prospect of a complex rip-and-replace of existing payment systems and, if built well, the ability to flex and adapt to changing customer needs. The key downside is the depth and breadth of talent that will be needed on the development team. New hires may be required to fill knowledge and skill gaps, posing potential risks to timelines, budgets and deployment dates. An additional layer of complexity comes from incremental systems investments, such as upgrading legacy systems to support the high-speed processing capabilities and data security requirements of RTP systems.

Banks additionally may consider integrating robust APIs that facilitate seamless connections between their systems and the instant payments network (i.e., TCH RTP / FedNow), ensuring quick and secure transaction processing. Collaborating with fintech partners can expedite this process by leveraging their expertise in innovative payment technologies and solutions. Additionally, banks may opt to outsource certain aspects of their RTP implementation to third party service providers and contractors, ensuring the financial institution remains focused on its core competencies while benefiting from the advantages of a seamless, frictionless and quick-to-market strategy for realizing the rewards of instant payments.

The choice a financial institution makes will rest on the risks and rewards of each approach. By adopting a blended approach banks can successfully harness the potential of instant payments, providing their customers, employees and organizational stakeholders with a faster, seamless and more efficient payments modernization experience.

Combining approaches allows for customization of an already built solution, preserves a faster time to market and yet it allows the financial institution to retain control while filling in the gaps in its current payments operations. A hybrid approach adds a layer of complexity as it requires in-house and vendor teams to coordinate software releases, however a plan governing responsibilities for development and implementation can help ensure a successful launch.

Choosing the right payments modernization path rests mainly on a financial institution’s answers to strategic growth questions tied to payments:

  • Does the institution have the appetite to enter the real-time payments space?
  • Will it use the new system as an addition to or a replacement of its in-house system?
  • Is it revamping its go-to-market strategy around real-time settlement and analytics?
  • Does it want to build a system that leverages the information-rich ISO 20022 standard that the real-time networks are built on to drive asset growth?

These are not simple questions. Any new technology comes with challenges, and in this case, financial institutions are well-equipped to address them. Strategic use of the data ecosystem that’s growing around real-time payments will help institutions become a more integral and indispensable partner to customers seeking banking relationships that enrich their financial positions. To support financial institutions, PwC has developed a range of tools to mitigate risks surrounding operational hurdles, fraud, credit, compliance, liquidity and implementation.

How can PwC Help?

PwC can support the end-to-end implementation of modernized payment platforms including advisory and systems integration (SI) services. PwC offers support throughout the payment modernization journey including:

  • Market landscape and opportunity assessment
  • Payment Modernization Readiness assessment
  • Business case
  • Payment solution stack mapping across:
    • Customer journeys
    • Business process and system capabilities
    • Payments capabilities
    • Modern technical architecture
    • Data architecture
    • Infrastructure architecture
  • Roadmap for target state
  • Vendor assessment
  • Implementation planning
  • Risk and control assessments
  • Payments engineering
  • Financial crimes / AML solutions
  • Quality engineering and E2E testing
  • Scalable and automated non-functional tests
  • System integration support

PwC’s extensive experience across payments and technology projects for the largest institutions in the world can be leveraged to help guide your payment modernization journey.

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Peter Pollini

Peter Pollini

Financial Services Industry Leader, PwC US

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Julie Ferguson

Julie Ferguson

Banking and Capital Markets Assurance Leader, PwC US

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