It’s instant payment or bust in banking!

What was once a mere service, is blooming into a full-fledged industry now. What we’re talking about here, is the payment industry and how this industry is changing the way banks operate.

The rapid growth of innovations, and the coming together of several factors technological, demographic, and economic in nature is causing a state of flux in the payments market.

This, coupled with growth in digital payments, and the huge demand for immediate payments, seems to drive the dynamics of retail payments today. It is, therefore, a lucrative situation to invite players from even the non-banking and non-payment backgrounds to thrive here.

No wonder, we find financial technology start-ups like Ripple and Chain going all out to capture this segment. What’s quite interesting to notice here, is that non-payments technology giants like Apple, Google, Amazon, and Facebook are equally enthusiastic and discreet about the immense possibilities in the payments market.

However, customers, the ones who decide which product will make it or break it, are looking up to the payments market with a simple yet concrete set of demands. With millennials dominating the online and mobile payment segment, the keywords here are speed and ease, more simply put - the instant payments.

It is against such a disrupted and challenging payments landscape that the original and the once lone player of the field, the banks, are trying to catch up fast. With stringent regulations and security measures to follow, banks fail at being the number one choice for customers when considering instant payments.

When customers wish to transfer money, split a dinner bill, or pay their rent, they hardly have the patience or time to answer multiple security questions or fill in complicated details such as the account no. branch codes, and what not. The question is why would they? When there are mobile services like PayPal’s Venmo or Square Cash that only ask for a mobile no. or email id for these quotidian payments, the choice is fairly simple, isn’t it?

The banks well understand the changing situation, and its pros and cons. Consequently, we find big banks like JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co and U.S. Bancorp to have started a system of their own, clearXchange.

This system will enable bank customers to transfer money in a flash using their mobile number or email address. In addition to this, clearing houses are creating a broader network that will allow not just individuals but also businesses and even governments to make large instant payments.

Although banks boast of the largest global customer base when compared to any other player in the finance industry, that does not make them the most viable option for instant payments. In fact, if they do not improve their instant payment offerings they will soon be relegated and confined to less profitable back-office functions for these hip, new instant payment companies.

These peer-to-peer payments that are increasingly adopting the instant payment routes are also of great importance to a bank’s other products, say loans. After all, these payments offer banks the first point of contact with customers. Banks can also expand these payment networks to connect consumers with merchants. This will prove to be a remunerative source of fees for banks. Therefore, instant payments seem to have a bearing deeper than what meets the eye.

The key for banks to succeed with instant payments lies not just in attracting customers from its competitors but also cannibalizing the large number of payments that are still made by cash and cheque. With such propitious possibilities, banks need to be aware that it’s either instant payment or a bust in banking!