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What it Means for a Bank to be Real-Time Ready – It’s More Than Just Payments

Ready for real-time goes beyond payments

Banks are quickly learning that real-time enablement of the business is more than just a technological upgrade – there is a wider challenge of transforming services and customer experience. Although the banking world faces this challenge with some trepidation, there are success stories from other industries that have overcome legacy technologies and transformed frustrating and opaque customer experiences.

 

Journeys to Real-Time

Have you taken a bus in London recently? In the old days, knowing which route to take and when it might turn up seemed like it was strictly the reserve of the elderly – those who had decades of experience in the sport. Now the bus is a fully integrated part of the Transport for London network and serves six million passengers every day.

Connecting historically disparate systems on old technologies wasn’t the only challenge in increasing bus usage, orchestrating the new ‘Five Vs’ of big data (velocity, volume, value, variety and veracity) created by the new overlay services was critical in achieving much needed modernization. The 8,000-strong bus fleet generates geo-location pings every 30 seconds! The transformational element is that this ping information is available to third-party services including Google Maps, CityMapper and this rather lovely real-time map.

Now customers can make decisions beyond when to go to the stop; they can use the overlay services to decide whether to take the bus instead of the tube based on time versus cost calculations, or if they should wait for the second bus arriving shortly because it’s likely to have seats available. The result of this? Huge improvements in customer experience, a £21 million increase in bus fare revenues, and a service fit for a modern city economy.

The service has certainly improved because of technology improvements, but user satisfaction has also improved because of greater focus on customer-centric behaviours, such as recognizing that simple information about the real-time position of a bus (whether it’s via a dot-matrix display board or by a third-party app) can have a big impact on service users’ happiness.

 

Pushing Real-Time in the Public Sector

Unsurprisingly, the public sector has many government facilities, infrastructure and departments still running batch-based systems, necessitating clunky workarounds to deliver anything like real-time on the front end.

But with the migration of public services to real-time visibility, accountability and actionable data, there comes a desire for a new, truly-connected, digital real-time ecosystem. In addition to many new government digital ID and authentication facilities, irrevocable real-time payments and non-financial real-time messages (such as status enquiries) will be the baseline standard for interactions with the government. No longer will applications disappear into a black hole of bureaucracy: Citizens and taxpayers have a legitimate right to timely and transparent information.

So inevitably, government departments have started the same kind of journey towards digital, real-time services. But the historic processes that underpin government transactions are also deeply rooted in the mentality of batches, if not entirely paper-based. Transactional systems will have to be overhauled to support the booming digital economies envisaged by government policymakers keen to participate in the next industrial revolution. Banks that are able to create and support their own real-time service culture will also play a role in cajoling and encouraging governments to revamp their services too.

Traditional government processes that have supported travel/visa applications or submissions for permits and licenses, or enrollment into healthcare insurance plans, are prime examples of the need to create true real-time experiences.

Today, so-called online applications are made in a digital environment sheathed in a real-time façade. But the fact is, once the information is submitted, it gets diverted off the real-time digital rails towards manual and batch-based systems. Have you ever had to apply for an ESTA (Electronic System for Travel Authorization) to enter the United States under the Visa Waiver Program? There’s no proactive update once it is eventually approved; the user is expected to log back into the government portal until they get the green light.

 

Hitting an information blockade is not only  frustrating for the user, in a CX-era where consumers have high-tech apps to alert them exactly when their next bus will arrive, it’s borderline unacceptable for important government transactions to be executed on the basis of “OK thanks for your request, we’ll get around to processing it when we can, keep on looking to see when we’re finished!”

 

Shifting the Banking Mentality to Real-Time

There are clear parallels to be drawn between the public sector and the world of business banking, which is often viewed as a last bastion of the analog age. Banks are struggling to bring together disparate business and technology silos. To compound the complexity of the shift to real-time, many banking processes have been built around a batch processing mentality, which dictated the technology approach; windows for nightly updates, and enterprise resource planning systems that don’t require 24/7/365 attention.

 

From a customer experience point of view, one of the most frustrating elements of the old world is the ‘batch tentative approval,’ where requests, data submissions or transactions are not actually completed at the time of request. To move away from this batch technology towards a world of immediate fulfilment, organizations must go beyond technical systems upgrades. They also have to redesign batch business processes, and shift the mentality that created them.

Financial institutions on a digital transformation journey towards modern real-time services will need transaction handling systems designed for immediate fulfilment.  They need real-time payments and open technologies to connect information sources into real-time services. This combination of technology designed specifically for real-time, plus the mentality of real-time thinking, will allow banks to give customers instant and irrevocable confirmation of successful business transactions.

In a real-time and open payments and information ecosystem, the quicker you adopt the mentality and technology the more you will see value realization. Even a large bank can increase profitability by creating certainty in its available funds, and therefore investing it wisely both for itself and on behalf of its customers.

 

Customer Centric Digital Transformation

Corporate organizations are also in the midst of digital transformation, just like banks. They understand that up-to-date information is power, and they want that information to be transparent and available in real-time. They also recognize that their customers (both businesses and consumers) expect a real-time, clear and transparent engagement when it comes to buying goods and accessing services.

Within banking, empowering organizational units that service these customers is at the core of the digital transformation mission. The ripple effect of real-time goes all the way to frontline sales, as the information gleaned from new corporate customer conversations, augmented with real-time payments information and previous histories, allows banks to upsell new revenue-generating services such as credit provision, alternative financing and factoring.

Frustrations abound in the corporate space, but currently the unacceptable experience tends to be at the small business end of the spectrum. Treasury and cash management has always been ‘fast-in, slow-out,’ but this glacial disbursement has been at the expense of the smallest player in the chain.

The negative effects of opaque payments and inaccessible information has been disproportionately slanted towards SMEs. But those whose cashflow – and ultimately business – is most pressured in the current model have the most to gain in the era of real real-time. Working capital management goes into hyperdrive with real-time information flows, and transparency of information in real-time for the ‘little guys’ and their banks opens up access to release funding and offers liquidity services that maximize profitability whilst keeping the lights on.

Most small businesses go bust because of cash flow issues caused by their biggest customers, not because their business model is flawed.

High-end corporate customers stand to gain too. They might not suffer the same cashflow issues thanks to their huge in-house ‘banks,’ but these massive treasury and finance departments are still hugely paper-based. The efficiencies gained with data-rich messages will drive value to the bottom line, and real-time, transparent information will drive improved business decision-making.

 

Regulating Real-Time

Ironically, many governments today have recognized the potential for economic improvement through real-time enablement of financial transactions for businesses. Governments have encouraged the use of new financial infrastructure, including new real-time payments clearing systems and related electronic commerce overlay services.

This public policy action is based in part on the impact that fast and transparent access to funds has on productivity and profitability of nations. The UK government has estimated that at any one time approximately £1 billion is owed to small businesses. Currently it is looking at addressing the issue with proposed laws to make it easier for SMEs to access invoice finance. Invoice finance allows a business to raise funds by assigning the right to be paid to a finance provider, typically for 80% of the value of the invoices.

Real-time payments services could address this ‘certainty of payment’ challenge in the current environment and alleviate the cashflow pressure with delivery of the necessary funds in real-time once approved. Efficiencies in addressing invoice financing will be achieved by capitalizing on richer data available in real-time payment messages and newly connected data sources as part of the real-time enablement of the bank. A real-time bank knows instantly if its customer is credit worthy.

 

Building a Real-Time Bank

Very few financial institutions will execute a transition to the nirvana of an end-to-end, always real-time processing scenario, particularly when they consider the enduring legacy of batch-based systems. It is inevitable that so-called “middleware” solutions to bridge between old and new will be needed. But even modern banking systems still require functional divisions, and middleware is also needed to orchestrate and broker transactions between the different functions.

Modern middleware allows systems designers to reshape and transform operations by offering access to a stack of building blocks needed for real time. The new middleware goes beyond traditional functions of connecting historically disparate systems and protecting mission-critical applications. Middleware needs to be more than a bridge between a batch-base past and the real-time future; it also needs to enable new services designed for a modern world of applications.

Implementing an intelligent middleware layer built specifically for payments and mission-critical systems enables the orchestration, translation and transformation of payment messages (both financial and non-financial). It can onboard or offboard data within a message flow without impacting existing processes and payment flows within the bank.

Banks need to be able to accept messages in any format and translate them to meet their internal needs while returning messages back to the external ecosystem in the modern global standards. With a two-sided canonical model, banks can accept a data-rich message, extract and convert the salient information for their various internal systems, orchestrate those new simple messages out to internal systems, accept the return messages and convert them back to a data-rich format or translate them into another simple message for another internal system.

Eg. ISO20022 (data rich) >> 8583 or other (simple) << ISO20022 (data rich)

Read the Transacting with Transparency use case in full

Without the magic of middleware, banks are still stuck in monolithic applications, with point A to point B buildout projects. But with an intelligent layer to enable new use cases, banks can develop them one-by-one, rather than trying to reach a critical mass of use cases to push an initiative forward.

Each individual use case in and of itself will not be enough to justify the business case of the move to real-time, but with middleware building blocks banks can build a real-time ecosystem that can reach out to individual groups within the organization. The key will be ensuring that the organization has adapted to the mindset of incremental improvement over big bang results, before embarking on the first use case. The middleware will be the layer to bind the rest of the business into the real-time world, and to enable the continuous evolution, deployment and innovation that the new real-time paradigm demands.

And banks don’t have to do it all themselves. The orchestration layer allows banks to both expose and consume APIs. On the exposure side, we have the kinds of mapping apps to which TFL has made real-time bus data available. On the consuming side, TFL has launched its own innovation portal to integrate innovative services and propositions from trusted third parties, and manage the impact of those on their own business. This is exactly the kind of model banks should be targeting when they transform to a real-time organization.

 

Discover the use cases for real-time banks in the new whitepaper from Lipis Advisors and ACI Worldwide: Get More From Real-Time