By Casey Scheer
BHMI
Real-time payment adoption will grow rapidly in the coming years, and pressure is mounting for financial services companies to update their infrastructure to support it. However, many companies still lack the operational readiness to fully take advantage of real-time payment (RTP) processing.
For example, most have integrated front-end systems to accommodate instant payments, but their back-office systems cannot support real-time settlement. This leaves a lack of visibility and an hours-long gap in the settlement process, opening the door to fraud.
While a modern payments system can help financial institutions reduce bottlenecks and keep pace, it also presents new opportunities to profit. By adopting a modern back-office system, financial institutions can handle greater volumes, quickly adopt new payment methods, reduce costs and gain a competitive advantage.
In today’s fast-paced digital economy, neither businesses nor consumers want to wait hours or days for transactions to settle. Many are now looking to RTP processing because it offers instant confirmation, faster settlement, transparency and greater reliability.
The Clearing House launched its RTP network in 2017, the first new payments system in the United States in 40 years. TCH RTP now supports B2B, payroll, request for pay (RfP), and payroll for several hundred institutions.
However, interest in and adoption of real-time payments has significantly increased since COVID due to further digitization, fintech innovation and consumer demand. One study by Javelin Strategy found that in 2022, nearly half of consumers had used a payment method to send or receive funds instantly through P2P, funds transfer or bill pay (see https://bit.ly/40MUgg3).
This momentum and pace will likely increase this year as the FedNow Service expands across the economy. Grand View Research forecasts the global real-time payments market will grow at a compound annual growth rate of 35.5 percent between now and 2030 (see https://bit.ly/3FKTeJ6).
It is no longer a question of if financial institutions need to adopt RTP methods but how they can adopt them. The ability to process payments efficiently in a scalable way will play a critical role in the success of financial services companies in the coming years. As competition grows, they will quickly lose market share to competitors that offer more value-added services and faster money movement
Although organizations have been able to quickly adapt their front-end systems to enable real-time payments, many companies are still using slow, legacy back-office systems that cannot keep pace with the front end. Back-office systems are critical to real-time payment methods because they support reconciliation and settlement processing, handle disputes and assess transaction-based fees.
The problem is these systems were designed decades ago to handle card-based transactions. They process transactions in batches over hours, or even days, while RTP must happen in seconds with 24/7 demands. These systems also require extensive coding to make changes. Some financial institutions try to keep pace with continual updates and patches but often end up with systems that are siloed and lack integration. These systems can be troublesome to deal with and cannot support new payment message formats such as ISO 20022.
One of the biggest shortcomings of legacy systems is the lack of visibility and the gap they leave in the settlement process. While users can create and post payments on a front-end-enabled system, no payment is fully completed until it is settled. Legacy batch systems don't allow money to leave the consumer's account or settle until the transaction has happened, and they also allow cancellation between payment initiation and settlement.
Therefore, in a world of RTP, these old systems open the door to fraud, as unscrupulous actors can cancel a payment after a seller has provided services or goods.
Many financial institutions know they need to update or upgrade their back-office systems, but doing so is often easier said than done. Financial institutions are often intricately tied to their legacy systems, both in people and technology. Competing priorities often create stumbling blocks for project initiation as the seemingly enormous task of upgrading leaves companies unsure of where to begin.
While some are confused about new types of payments, many are also waiting for FedNow to go live before they decide on a strategy. Meanwhile, continually updating these systems is costly, time-consuming and an impractical way to evolve in today’s rapidly changing ecosystem.
However, financial institutions that drag their feet and only view their back office as a cost center are missing out on potential opportunities. While a modern payment system is essential to keep pace and reduce bottlenecks in RTP, it can improve efficiencies, reduce costs and help drive additional revenues by adopting new payment methods.
For example, a modern payment system can reduce costs by managing all payment methods in a single place. It can also help financial institutions stay ahead of the competition by easily supporting new and changing requirements as soon as they are available, without the high cost of code changes and new configurations.
A modern payment system eliminates many manual processes, saving labor and allowing leaders to focus more on profit-building tasks. Scalability means that financial institutions can keep adding new payment methods no matter how much volume grows. Finally, they can also use data to improve customer satisfaction and ensure there are no unnecessary inefficiencies in payment operations.
These systems typically include a centralized transaction repository and a continuous processing architecture, enabling the financial institution to accommodate traditional and RTP payments with the same system. These systems also feature a comprehensive, integrated solution to modernize all payment processing with a configurable rules engine, security infrastructure, and a multi-tenant, browser-based user interface.
While a modern back-office payments system brings financial services companies up to speed, it also future-proofs them to prepare for whatever payment methods come to market in the coming years. 
Casey Scheer is the director of marketing at BHMI, a leading provider of software solutions focused on the back-office processing of electronic payments. The company is best known as the creator of the Concourse Financial Software Suite® — a unique integrated collection of back-office products that allow companies to adapt to the rapidly changing world of payments. Casey can be reached at casey.scheer@bhmi.com or 402-333-3300..
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