“Always borrow money from a pessimist. He won’t expect it back.” –Oscar Wilde
Gonzonians, as we head into a fairly uncertain 2022, one thing we can be sure of is that real-time payments (RTP) will be a major topic and strategic focus. In the 2022 edition of What’s Going On In Banking, my colleague Ron Shevlin identifies this as one of the four major trends for mid-size banks.
While there are a lot of tentacles to this story, real-time ACH will be a central theme, particularly as it applies to the business depositors so many banks identified as a strategic focus. Both the Federal Reserve (via the FedNow product) and The Clearing House are live with their real-time ACH solutions, and most of the mega/large banks are already live with one or both.
This presents mid-size and community financial institutions with an opportunity to go to business customers with a new solution and advice that can solve real business problems and cement relationships.
Here are seven considerations for approaching this opportunity:
The truth is that everybody doesn’t need a real-time ACH solution. In 2020, ACH network volume totaled 26.8 billion transactions. Of those, 347 million, or about 13%, were real-time. Future percentages will no doubt double or triple, but a majority of transactions will do just fine on the pre-arranged/batch/warehoused model – e.g.:
However, there are some businesses/areas that have immediate, dead-on needs for real-time:
These are just a few of the obvious ones, but every FI with a niche will identify others that apply to them. This is a great opportunity for banks to utilize the data analysis expertise they have been building to come up with a game plan for the cash management and branch teams.
Most businesses will not intuitively understand this opportunity, and this is something new with tangible value banks can bring to them. One of the comments Cornerstone hears the most from front-line staff is that they never feel they have something new or different to sell. The bank that is first to its customers with this information and solution does.
There are still too many businesses, and particularly smaller businesses, that use paper-based, manual payment processes. This is an opportunity to help these businesses automate and digitize using the bank’s cash management solution. Plus, client education on real-time can be a door-opener for other deposit services.
Whether it is QuickBooks or common GL/payment systems commonly used in particular industries (education, medical, legal), banks need to understand the impact and interface requirements. The front-line team will shine when they can offer definitive answers to questions about these interfaces.
In some cases, real-time ACH can be a much better solution than wires for business customers, especially for smaller amounts. In others, wires are a big source of fee income, or soft charges in account analysis. Banks should use their data expertise to plan for volume/fee income impact and review potential changes to fee income and account profitability.
While it does not look like there will be a significant up-charge for a real-time ACH payment versus batch, there will be some kind of up-charge. Banks need a clear understanding of fee changes and implementation charges. And, with that in mind…
Remember the line, and the wait, to get Apple Pay? At least for “Receive” capability, banks should ensure they can go live with the solution in a timeframe that complements their sales plans and addresses the changes they will need to make to handle this service. Everybody will need to be able to receive, since the big banks (that initiate so many of the transactions) all have “Send” capability today. A bank may be able to wait to deploy “Send” based on the niche strategy allowing it, and it appears there will be more back-office changes needed for “Send” versus “Receive.” However, there may be a benefit to doing both at the same time.
A new product exists that will provide real value to a key customer base. Bankers, don’t miss this opportunity to expand your advisory relationships. It’s the beginning of many payment opportunities ahead.