Banks and other financial institutions are in the midst of considering whether the move to real-time processing makes sense or is even worth the hassle, especially when their processes, systems and architecture are often still entirely batch based.
So, how can the move to real-time processing benefit not only banks’ customers, but the banks themselves? After nearly 30 years in the business of real-time and as FIS’ vice president of Next-gen Banking, I’m here to share a little background and explain what’s really at stake when it comes to real-time processing.
Memo posting vs. real-time posting
For banks operating on a traditional batch model, transactions are soft posted as they’re accepted, but they don’t really impact account balances until batch processing takes the transactions from theoretical to the real deal. This can cause problems for everything from customer satisfaction (due to delays) to fraud management. Not only can real-time processing solve these problems, it can also lay the foundation for long-term growth. For banks looking to compete with nontraditional banks and financial institutions (FIs) arising to meet evolving customer demands, here are five key benefits to making the move to real-time processing:
1 – Funds access via real-time processing
For the bank and the bank’s customers, immediate access to funds offers huge benefits. Customers are more likely to trust banks who will give them immediate access to their paychecks and other funds, and banks will lose fewer customers to fintech upstarts who offer everything in real time. The ability to view and access transactions in real time also means that everyone – from the customer using their mobile app to the bank teller and customer service department – sees exactly the same information at the same time.
2 – Fraud management improve with real-time processing
Real-time payment processing also offers tremendous benefits for consumers and banks when it comes to fraud detection. When transactions are posted in real time, alerts and notifications also happen in real time. This means an account with fraudulent activity is spotted right away instead of being discovered during overnight batch processing – a delay which could allow harmful transactions through. Consumers will feel protected, and banks will spend less time and resources on fighting fraud. Those resources can be redeployed into the next key benefit, product innovation.
3 – Product innovation due to real-time processing
When banks can reroute resources to focus less on manual processing, they’re free to focus more on innovations. One FIS client saw a decrease in product time-to-market by 90 percent because real-time processing allowed immediate product configuration and migration – something that wouldn’t have been possible in a batch world. Real-time processing provides immediate, accurate data that can be used by real-time analytics to cross and upsell effectively based on the customer’s personal transaction history and financial behavior.
4 – It isn’t all or nothing with real-time processing
If the move to real-time processing seems like a huge lift, there’s good news. Banks operating on traditional batch processing methodology don’t have to make the move to real-time all at once. The shift can be gradual, starting with processes that make the most sense for each individual bank and expanding as benefits become obvious. The good news is that even with this approach, banks will see real benefits as real-time access delivers improvements to other systems as well, with everything from analytics to application program interfaces (APIs) improving the day-to-day experience of every bank employee and customer. This, in essence, is the real-time ecosystem: a place where you’re taking advantage of the aspects of real-time that make the most sense for you right now, then evolving and adapting as they begin to benefit from other aspects of your bank’s systems and technology.
5 – Increased performance, decreased cost with real-time processing
Thanks to real-time processing, not only will banks see happier customers, shorter time-to-market and better fraud management, they’ll also see lower operational costs across the board as real-time posting of transactions means immediate decisioning of any exceptions encountered with those transactions. Manual intervention gives way to more automation, resulting in a significant reduction and elimination of next day or “day two” processing. The newer technology required for real-time will also free banks from managing and synchronizing multiple databases, overseeing aspects of recovery and business continuity, and decreasing overall cost per account.
Especially in the U.S., banks have been very successful running on memo posting (or batch processing) for a long time, but the advantages of moving to real-time are real, and the time is now. Real-time will make an essential difference as your bank moves forward. Our world is a very different place than it used to be, and the post-pandemic landscape is going to continue pushing financial institutions toward digital and real-time.
Get to know how FIS is enabling real-time processing with APIs: Read more here.
Editorial Note: This article was originally published in November 2020. It has been updated for accuracy and comprehensiveness.