As the global financial services industry accelerates towards real-time payments, banks must find a way to keep up. Banking expert, advisor and futurist Brett King suggests that “The best service in financial services happens in real-time and is based on customer behavior”. But making the move to real time is not easy, and many institutions face a steep climb to reach that summit. In this blog we explore why this journey is well worth the effort. 

Disruptive forces constantly redefine global banking and the ways customers bank. Customers increasingly interact with their banking apps, and a majority would rank the ability for a bank to “Allow me to do things for myself anywhere, anytime through digital channels” as very important. Digital isn’t a trend; it’s the way banking is and will be done.

Strictly speaking, real-time processing is not synonymous with digital, but the two are inextricably linked. As customers become more demanding, it seems inevitable that all banking services will need to be delivered this way. This requirement, combined with the other tangible benefits offered by real-time platforms, makes for a compelling case and strong incentive for traditional banks to modernize and plan their move to real-time.

For banks operating a traditional batch model, transactions are soft-posted as they’re accepted. The updates don’t really impact account balances until batch processing takes place later. This can cause problems with customer satisfaction (due to delays) and issues with fraud detection and management. Real-time processing can help solve these problems, while laying the foundation for long-term growth.

When Cash Was King

Cash was the original way of exchanging value in real time, but customers now enjoy the convenience of real-time banking and instant payments. In many respects mobile payments offer all the benefits of cash, with increased portability, flexibility, and security. Mobile is proving to be a fast, safe and convenient way to pay that offers benefits to all parties involved in the transactions.  

The rise of mobile propelled real-time processing into the limelight. While banks around the world (particularly challengers) have implemented real-time processing to support immediate payments, many financial institutions remain on batch-based mainframe cores and have had to implement workarounds to support mobile banking. These workarounds served a purpose, but they’re expensive to sustain and limit what can be achieved moving forward.  

Real Benefits for Banks

Sooner rather than later bank systems must be exposed to a growing open financial ecosystem that’s increasingly mobile and real time. As banks strive to become more efficient and customer-centric, a real-time approach is needed and the clock is ticking.

Benefits include:

Fend off the upstarts. Challenger banks typically begin with a blank slate and can build a bank around a real-time core. They are spared the challenge of multichannel integration and can offer customers a consistent real-time experience across all channels. Incumbents likewise need real-time platforms to stay ahead.

Improve funds access and awareness. Customers trust banks that give them ready access to their money, and real-time access to funds is becoming table stakes. Being able to view and access data in real time also means that everyone – from the customer using their mobile app to the bank teller and customer service department – sees exactly the same up-to-the-moment information at the same time.

Boost Innovation. Customers expect banking services to be timely and delivered in context. Real-time platforms provide immediate, hyper-accurate data that can be used by real-time analytics to cross and upsell effectively based on the customer’s personal transactions and financial behavior. Forward-thinking banks will harness the power of real time to both boost innovation and exceed customer expectations. And if they don’t do this, others will.

Increase efficiency. By adopting real-time technology banks can reduce their costs per account. How so? Real-time transaction posting means immediate decisioning of any exceptions, significantly reducing or even eliminating next day or “Day Two” processing. Many manual processes can be automated and streamlined, and the newer technology frees banks from managing and synchronizing multiple databases, while also bolstering many aspects of recovery and business continuity.

Transform fraud management. Real-time processing offers tremendous improvements in fraud detection and management. When transactions are posted in real time, alerts and notifications also happen in real time. Fraudulent account activity can be spotted right away instead of being discovered later during overnight batch processing, a delay which could allow harmful transactions through. A bank is empowered to detect suspicious behavior as it happens and can stop fraud in its tracks. Customers will feel protected and banks will spend less time and resources fighting fraud.  

Welcome new tech. Most incumbent banks have evolved along the lines of products and channels, and the bank’s IT structure was informed by this history. The bank of the future will not be product-driven but customer-driven. Artificial intelligence, machine learning, event streaming and advanced analytics will use real-time data to deliver bespoke services and advice where and when the customer wants them.

A Measured Approach to Real Time

Clearly there are substantial benefits of making the move to real time. But implementing real-time processing can be a daunting challenge because it touches almost every business process. The good news is that the move doesn’t need to be done all at once. This is a race that can be run in stages.

The shift can be gradual, starting with processes that make the most sense for the particular bank and expanding as the benefits become obvious and improvements progress. This, in essence, is the real-time ecosystem: a place where an FI takes advantage of the aspects of real-time that take priority right now, then evolving and adapting as it begins to benefit from other aspects of the bank’s systems and technology. With a progressive migration, risk can be mitigated, and investments aligned with business benefits and success.