The SME opportunity: How banks can transform real-time payments into revenue

The rollout of real-time payments is progressing rapidly, benefiting consumers and the economy. However, the anticipated proliferation of new value-added services related to real-time payments has been slower than expected. Why is this, and what can we do about it?

It’s clear that real-time payments will continue to replace traditional payments in most of the world's major economic markets. In the U.S., FedNow continues to grow in both volume and value, with more banks now able to send and receive real-time payments. In Europe, real-time Single Euro Payments Area (SEPA) payments will be mandatory by the end of this year. Further, the U.K.’s New Payments Architecture (NPA) is real-time focused.

However, while the move to real-time payments continues, we haven’t seen the proliferation of new spin-off open banking services that were expected, as well as related new revenue streams and cost savings.

Beyond immediate retail payments

The value of immediate payments in terms of payment speed are self-evident across the entire value chain. However, the benefits immediate payments can deliver through value-added open banking services and, indeed, through ISO 20022 extend beyond the initial payment transaction and its speed.

Open banking services, which sit on real-time payment rails such as Request to Pay (RTP) and Variable Recurring Payments (VRPs), have been available in some markets (Europe) for a while but have yet to be widely adopted and still have a limited set of use cases. A possible reason for this might be the focus of regulators on the individual retail customer experience, with a less visible focus on small- and medium-sized enterprises (SMEs) and the commercial banking sector.

As a result, the SME sector is relatively untouched by open banking services, creating opportunities for banks to use their investment in real-time payments and existing open banking developments to bring additional value to their SME customers.

Thoughts on value

While open banking services based on various real-time payment schemes often focus on the retail consumer, open banking also creates opportunities to deliver new and enhanced services for the SME market. Developments such as the increase (or removal) of upper-value limits in real-time payment schemes further enhance these opportunities.

There are many SME value-creating services to consider. Of course, it’s now possible for banks to settle with their SME customers and make B2B payments using instant payments, with resulting improvements in cash flow. However, this is just the start.

Banks can offer services such as RTP to SME customers as managed services (possibly embedded in an existing application), which provides SMEs a cheaper alternative to receiving payments by card. It can be said that card payments aren’t particularly built for SMEs; the fees are high compared to the transaction cost, and SMEs often have low transaction volumes. However, RTP provides a sensible alternative. Although an SME may be wary of adoption costs and risks, the bank could alleviate both by providing a prepackaged service.

In addition, in Europe, VRPs offer a more flexible alternative to SEPA Direct Debit, with immediate settlement to the SME merchant and lower fees. This is just one additional example of a ready-to-use value-added service.

Finally, the icing on this cake is the richer data in ISO 20022, which has the potential to improve reconciliation and provide greater market insights from payments data (especially over the limited data available from card schemes). Banks can play a significant role in helping their SME customers access the value of this data.

Potential issues

There are some considerations that need to be addressed. Some of these are in the bank’s control, with others less so. Ensuring that the bank’s real-time payment rail can support new value-added services is within the bank’s control and may be addressed in numerous ways. This might mean that real-time payments (SEPA Instant Credit Transfer/FedNow/Faster Payments/G3) are implemented in a different way within the bank, compared to other payment rails (perhaps, for example, as managed services where other rails are in-house).

Further, banks that issue cards need to consider how RTP usage fits in with their card business. It wouldn’t make commercial sense to introduce new services to the detriment of an existing business; however, RTP has a role in displacing cash, driving up volumes and ensuring future SME markets.

Finally, there is the practical consideration of integration with corporate enterprise resource planning (ERP) and treasury management systems, many of which aren’t yet operating in real-time payments.

Advantages of a real-time payments platform

Embracing a flexible, modern real-time payments platform offers significant opportunities beyond compliance. It can serve as a launchpad for a range of value-generating services. Such a platform combined with a real-time payment rail can simplify processes and provide an innovation path outside existing legacy infrastructure. It can take real-time payments to the next level, driving both new value-add services and market expansion. 

At CGI, we are having conversations with our clients about real-time payment and open banking solutions. If you’re interested in simplifying your payments journey and refining your strategy, please get in touch.