Real-Time Business-to-Business Payments Will Fundamentally Alter the Banking Landscape: ISG

Rhea-AI Summary

ISG's expert, Jay Woldar, discussed the transformative potential of real-time payments during a virtual event hosted by American Banker. He emphasized that these systems can enhance business liquidity, visibility, and cash flow management while also reducing interchange fees. Despite advantages, most enterprises still rely on ACH and wire transfers, which are slower and costlier. The upcoming FedNow system, set to launch in mid-2023, is anticipated to significantly bolster demand for real-time payments, compelling banks to adopt these technologies to avoid competitive disadvantages.

Positive

• Real-time payments can improve business liquidity and cash flow management.
• Platforms conforming to ISO 20022 promise increased security and reduced payment reversals.
• FedNow system launch in mid-2023 expected to enhance demand for real-time payments.

Negative

• Most enterprises continue to use ACH and wire transfers, which are costly and less efficient.
• Transitioning to new payment systems requires significant investment and can disrupt operations.
• Struggling to find personnel and technical expertise for implementing real-time payment solutions.

ISG expert discusses the impact of commercial-scale real-time payments during American Banker virtual event

STAMFORD, Conn.--(BUSINESS WIRE)-- Platforms for enabling real-time, commercial-scale payments between enterprises will fundamentally alter the banking and financial services industry and present technology and workforce challenges for enterprises, an expert with Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, said today.

In a virtual panel discussion, “How real-time payments enable new customer experiences and drive growth for financial institutions,” hosted by American Banker, Jay Woldar, director, banking and financial services with ISG, said enterprises will need to address the new systems’ operational, technology and people requirements before reaping the benefits.

“Consumers are quickly turning to real-time payments between individuals as a seamless replacement for cash or checks,” Woldar said. “Similarly, real-time payments between enterprises, which are initiated and settled instantaneously and permanently, will offer improved business liquidity, visibility and cash flow management and the possibility of reducing or even eliminating interchange fees.”

Emerging real-time payment platforms promise to increase security by conforming to ISO 20022, which enables financial institutions to send rich data sets with each transaction. The platforms also eliminate payment reversals and returns and deliver secure communications, multi-factor authorization, device binding and confirmation mechanisms, and more secure payment options through verified channels.

Despite these benefits, Woldar said most enterprises are still using ACH and wire transfer. ACH transfers take at least one business day, are not available on weekends or holidays, and require banks and companies to withhold funds to offset risk while funds are in motion, making money movement costlier and more expensive. Wire transfers are faster but are also more expensive.

“Adding a new payment system may sound like an easy decision, but the scale of the change disrupts ongoing bank operations and requires a significant investment in technology and security,” he said. “As with businesses of all types, banks and non-bank financial institutions are struggling to find the personnel and technical expertise to execute this strategic initiative.”

As the U.S. government prepares to launch the FedNow system in mid-2023, the lure of real-time, business-to-business payments will grow stronger, Woldar said. FedNow will be available to depository institutions in the U.S. and will allow them to build value-added services on the real-time payment capability.

“Demand will change in the coming years as more fintechs and competitor banks offer real-time payment capabilities,” Woldar said. “If a bank decides to wait on building a real-time payment solution, it may miss out.”

Additional information is available on the event website.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 800 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221206005936/en/

Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com



Julianna Sheridan, Matter Communications for ISG

+1 978 518 4520

isg@matternow.com

Source: Information Services Group, Inc.

FAQ

What is the significance of real-time payments for enterprises?

Real-time payments can enhance liquidity, visibility, and cash flow management for businesses.

How does the FedNow system impact real-time payments?

The FedNow system, launching in mid-2023, is expected to increase the demand for real-time, business-to-business payments.

What are the challenges of adopting real-time payment systems?

Challenges include the need for significant technological investment and finding qualified personnel.

What payment methods are most enterprises currently using?

Most enterprises still rely on ACH and wire transfers, which are slower and more expensive.