Real-time payments have a knowledge gap.
According to PYMNTS research, a surprising 36.2 percent of consumers claim to have used real-time payments even though the methods they use either do not support real-time payments or are not made in real time.
Why the lack of understanding? It’s possible that it occurs in part because payers receive instant confirmation upon making a payment, regardless of the method used and the time it takes for the receiver to access funds. But regardless of the reason the gap exists, it is clear that more work needs to be done to educate customers about the process and possibilities of real-time payments.
The gap was one of the topics addressed by a panel of industry experts assembled by PYMNTS to discuss what financial institutions (FIs) and credit unions (CUs) can do to accelerate the embrace and usage of true real-time payments.
“Educating the consumer is going to be essential really to any new and existing products and payment methods that are available,” said Deana Bartel, vice president of Payment Services at Randolph-Brooks Federal Credit Union. “Consumers did not have the confidence in using the product because they were not educated, and therefore, they didn’t understand the benefits and the safety of these transactions. So, bringing awareness to the consumers and even our frontline teams within the credit union will be essential to the success of [real-time payments].”
According to panelist Nubia Valenzuela, vice president of Payment Services at SchoolsFirst Federal Credit Union, the problem also extends to consumer trust. In fact, she said, many of her members still feel that they have no choice but to stand in line to deposit a physical paycheck.
“So, it’s that lack of trust that drives the consumer to utilize older versions of payment methods to get things done,” Valenzuela said. “So, I think that’s where we, as financial institutions, as the payments industry, need to really focus. They don’t trust the system. They’re afraid that if they send you $100, something’s going to happen on the way. They’re going to lose their money and who knows how long it’s going to take to get it back.”
Alacriti Senior Vice President Carl Robinson said in addition to education and transparency, more work has to be done to make end users and FIs aware of the mechanics surrounding authentication and the settlement piece, given that transactions happen in seven seconds or less.
“Giving consumers the option to refute a transaction, to be able to return it if necessary, is a critical piece, whether it’s digital payments or digital consumption, such as buying on Amazon and the like,” he said.
Collaboration And Encouraging Consumer Demand
According to Robinson, the ever-evolving and increasingly rapid payments space today demands the strategy of meeting the client where the client wants to be met. He also noted that this strategy shows itself by offering consumers the choice and flexibility to originate a transaction with that kind of individual attention. That kind of attention is the strong suit for CUs. And as much as the comparatively small universe of CUs gets a rap for being slow to adapt to every change and trend, the two CU panelists said that part of that is due to scale and fewer resources, but part of it is simply a reflection of their customers’ needs.
“I think sometimes we do overestimate some of the barriers that we believe are preventing us from moving into the [real-time payments] market,” Bartel said. “But I think with the right partner, both internally and externally, we can break down those barriers and try to move ourselves to the mindset of where we’re trying to be a little bit more competitive in that realm because consumers are asking for these different types of payment methods.”
Although SchoolsFirst has recently rolled-out of Zelle and is now moving on to contactless functionality, Valenzuela said it’s tough for small lenders to keep up with all the changes.
“So, payments is very dynamic,” she said. “It is always evolving. It’s growing too fast. And sometimes we can’t keep up with the speed because as we’re finishing one thing, there’s two more already waiting to get done. As credit unions, we usually are not the first one out there. We usually allow the rest to go through the growing pains and then we’ll jump on the wagon.”
That’s not to say these CU executives are not being asked by customers to provide modern digital banking products that they encounter elsewhere, especially from younger customers, which Valenzuela admitted has pushed SchoolsFirst to move faster in this area.
“There is a brand-new generation, with their phones and all the technology that we have today that pushes us to be where we need to be at a faster pace,” Valenzuela said, “but our systems and resources are not up to par, and I think that’s what sometimes is lacking.”
Just as customer segments are pushing the pace, so is the increasing variety banks and CUs are expected to address. Just like the healthcare system, the increasingly complex financial system — including real-time payments — is branching into more specialized practices.
“I think finance is kind of going in that direction,” Robinson said. “We’re starting to see specialization in lending embedded into wallets and the like. And so, you’ve got to be very sensitive. We’ve got to be aware of the condition of the client and of the prospect to the point of understanding, not only their business, but understanding their customers, too.”
New Users, New Uses
Like all tech, there’s a usage skew toward younger, digitally native customers. But that doesn’t mean the needs and potentiality of familiarizing other users to the benefits of things like real-time payments should be ignored. At a time when all transactions are happening more quickly — whether it’s takeout, delivery, Instacart or Amazon — Valenzuela said there’s clearly an appreciation for quickness.
“Who doesn’t have a phone today?” she asked. “As long as you’re educated, you understand the end result. I think anybody should be able to use [real-time payments]. It’s all about convenience, and who doesn’t want convenience?”
In fact, one of those new conveniences that more people are relying upon is the ability to get paid the same day or even intraday as they earn money, such as with rideshare drivers who don’t need to wait a week or two till the next pay day to access their earnings. Robinson predicted that those models will accelerate for real-time payments as they become less about speed and more about access to capital and access to instant gratification.
But Will They Pay For It?
But that begs the question: Are customers willing to pay a fee for the convenience and service? Or should it be free, and the cost borne by the bank, FI or CU? The answer, at least with this panel, is that it depends.
“Consumers are willing to pay for faster services,” Bartel said. “We see that with the Amazon solution — people are willing to pay for that prime service. But as a credit union, one of the challenges that we have is we’ve tended to be more fee averse because we want to give back to our members and truly consider their financial wellbeing.”
And as much as there is an opportunity to charge a fee, Bartel said imposing one would depend on what her competitors were doing. Valenzuela flatly said that SchoolsFirst doesn’t charge fees. She acknowledged that even though there is an opportunity to pass along the tech and back-office costs involved in offering a new service such as real-time payments, the risk is the customer might be willing to pay it once but never come back.
There’s also the issue that CUs are typically owned by their members, so there is a different ethos and relationship consideration that is not present in most commercial banks.
Robinson said it is important to contextualize the process and determine where the value actually exists in a transaction.
“And that’s evolving because, let’s face it, we’re making a market right here in [real-time payments],” he said. “Real time is new to the consumer and to the FIs.”