New research from Ovum, the market-leading research and consulting firm, reveals that North American commercial banks are continuing to increase their investment in real-time payments (RTP). The report ‘The rise of real-time payments in North America’, commissioned by Icon Solutions is based on responses from more than 7,000 CIOs and other senior IT decision makers.

The study shows that while implementing RTP infrastructures later than global peers, US and Canadian institutions are looking beyond the basic implementation of new payment rails. Instead, banks are also investing in services such as artificial intelligence (AI) and mobile banking based on real-time account data, recognizing that RTP is an important strategic opportunity ahead of open banking.

Research highlights:

• North American commercial bank IT spending set to increase by $3.3bn growing to $17.1bn per year by 2021
• 50% of US and 40% of Canadian banks plan to further increase investment in RTP systems on a year on year basis
• Spending on RTP cited as top three priority by 25% of US institutions and 20% of Canadian institutions
• Wider investment in ACH and wholesale payment platforms is also set to increase with 40% of US and 20% of Canadian banks set to boost spend
• Banks also investing heavily in AI, mobile banking and open APIs, underpinned by RTP infrastructure, to enhance services, differentiate and prepare for open banking

In the short term, banks are investing in real-time services ahead of market adoption to effectively compete for the business of their commercial clients. In the long term, RTP infrastructure will become the foundation for banks transitioning into an open banking environment.

Report author and Ovum principal analyst David Bannister said: “The move to RTP infrastructures has its roots in consumer banking, but commercial banks will also be affected by the changes. Many have undertaken significant investment to be able to comply – 28% of US commercial banks are increasing their spending on this area by more than 6% in 2018 – but the more far-sighted are also looking beyond basic compliance towards what product and service enhancements they will be able to develop for their corporate customers.”

“They also recognise that real-time infrastructures are part of wider structural changes in the sector and are investing in APIs to address the gathering momentum of the move to open banking.”

A foundation for service innovation

The top areas for IT investment – cash management services, liquidity risk management, mobile banking and on-line banking – are all underpinned by RTP as a foundational capability to address various existing service limitations.

Cash management services – a top priority for corporate customers – is consequently a major focus for investment. For US institutions, real-time cash positions top the list, with 44% stating this within their top three priorities, along with direct integration with clients’ ERP or treasury systems. Canadian banks are also prioritising real-time cash forecasting (40%) along with a single view across bank relationships (40%), for their commercial clients.

Real-time commercial banking

In terms of client-facing services, banks, desperate to break from the stuttering world of batch processing, must implement RTP to unlock real-time transaction data and unleash a powerful wave of real-time services.

For institutions in the US, access to real-time information, analytics and other services based around transaction data is paramount. In Canada, the focus is concentrated more heavily on providing access to RTP, along with enhanced services via digital interfaces.

Open banking and payment convergence

Canadian commercial banks, and to a lesser extent US banks, similar to those across the rest of the world are taking steps to prepare themselves for open banking. All Canadian, and 56% of US institutions are embracing an API strategy, with 80% and 56% respectively planning to integrate third party services into their propositions.

Both banks and third parties need access to real-time customer information to deliver compelling offerings. The investments being made in RTP and open banking imply a future convergence of commercial and retail payments as banks look beyond traditional payments systems.

Icon Solutions North America SVP James Methe said: “The strategic investment in the deployment of advanced RTP capabilities beyond core payments systems provides an opportunity for banks to widen their service offering to corporate clients. This research also highlights how adoption of real-time payments is imperative in the face of a rapidly changing landscape that requires banks to be more agile to in the face of widespread systemic change.”

The research ‘The Rise of Real-time Payments in North America’ is available for download.

Methodology

ICT Enterprise Insights surveyed more than 7,000 CIOs and other senior IT decision-makers across more than 60 countries worldwide to explore industry technology trends across sectors including financial services. The survey included responses from 211 commercial banks, responses which focussed on the commercial banking sector’s adoption of and investment in infrastructure to support real-time payments. The survey was conducted online or via telephone between July and October 2017.