In the middle reign of the RTP story, firms are still searching for a strong investment case

More than two-thirds of corporates surveyed by a FIS report believe the pandemic has accelerated adoption of real-time payment (RTP) systems – and slightly under two-thirds said RTP would reduce payments costs and boost efficiency.

However, the majority of them remain tepid about making big investments in the area, with more than half (54 percent) indicating they are only “investing slightly” in new payments innovation.

One of the reasons for the disconnect between these data points is that there isn’t one use case for RTP, said Bernd Richter, senior vice president at FIS.

RTP can potentially help with a number of business processes, including ensuring faster recognition of incoming funds, clearing trade credit with suppliers and helping firms push out new products and enter new markets, but those benefits can differ greatly depending on the business.

“There is no silver bullet. Every company needs to find their own benefit case for RTP,” said Richter. “We are trying to explain what the use case is. This is very different from industry to industry, and from use case to use case.”

New Messaging Standards

Though the ‘real-time’ aspect of the new technology is often highlighted, Philip Bruno, co-lead of McKinsey’s global payments practice, said the biggest benefits actually concern ancillary services rather than shortened payments timeframes.

“The competitive advantage is not in speed, but it’s actually in all of the services that you see around it. Payments is turning from just pure payments and money movement into commerce facilitation.”

Moreover, payments are becoming less of a product and more of a service, Bruno added. Banks and other payment providers need to look at how their offerings can help grow client revenue or improve how they conduct onboarding and Know-Your-Costumer practices.

“It’s really about providing value, from an institution’s perspective, on the cash management side for their customers.”

To enable this, corporates, banks and tech vendors will need to look at leveraging ISO20022 messaging standards. However, using new messaging standards is not simply a rip and replace process: it involves training and changing operating procedures to incorporate new data flows.

“There’s a lot of stuff that needs to be changed and adapted. That is a lot of money that needs to be invested,” said Richter. “It can only happen gradually, you don’t do this overnight.”

Firms are also reliant on other businesses to make the switch, creating a chicken-and-egg problem.

“If I want to get the full benefit of ISO20022’s capabilities, I also need to then look at [the] partners that I interact with, whether they support it.”

Small businesses leading the way

The good news is that most, if not all, new payments techs are able to handle the new messaging standard – and while, at present, some corporates are not interested in incorporating the new data into their systems, the option to do so exists in the tech stacks on the market.

“Most of the systems that you now upgrade to, if you’re upgrading your payment systems or your general ledger, are ISO 20022-compliant,” says Bruno.

“We’re getting more adoption through this natural updraft, as we get much more modernisation of the back-office technology for corporates.”

He added that RTP adoption is also bucking a trend: small businesses, rather than the usual large corporates, are the early adopters.

The FIS report found that legacy technology, along with a fragmented RTP landscape, are the top two obstacles to adoption – which helps explain why small businesses, which escape the hurdles posed by older technology systems, have been more nimble, especially in B2C transactions where consumers are expecting more real-time payment options.

“A good portion of the innovation is happening bottom-up, where we used to see technology trickle down,” Bruno said. “Without the legacy issues, we see much more of the adoption at the small business side.”