Benefits from real-time analytics for immediate and instant payments

Speed of the digital economy and customer expectations

In the past few years, the digital economy has increased the speed of transactions and changed the expectations of consumers. Those consumer expectations are being shaped by their experiences with other digital businesses — the Amazon Prime Now service will deliver goods to your home in hours, while Netflix provides access to thousands of movies instantaneously. Similarly, the need for immediate access to bank funds is an imperative in the digital world for both businesses and consumers.

Over the past few decades, the payment-transaction settlement time has decreased from five days, to three days, to immediately on the transaction date. This has occurred within existing payment schemes like ACH in the United States, and new payment schemes such as Faster Payments in the UK. More than 18 countries already offer immediate payments, including Singapore, Japan, and Denmark, and the number of immediate payments initiatives around the world is growing.

Immediate payments increase the speed of business, accelerating the pace of trade, transactions, and decisions. In this environment, the traditional bank’s “fix-on-failure” approach to business operations no longer works, as there isn’t enough time to fix issues after they occur.

If your Payment Operations team wants to meet their objective of a perfect customer experience, you have to become proactive. The sooner an emerging issue can be identified, the more time you have to address it prior to negatively impacting customers or regulators.

Real-time analytics for immediate payments

Real-time analytics should provide operational users with the information necessary to take action immediately. Within an Immediate Payment Operations team, we can find several categories of users such as Business Managers, Product Owners, the Customer Service Team, and IT support. Each one has a specific need. For example, a Business Operations person may have the following concerns:

Business performance

• How can I ensure smooth 24/7 support?
• What is my current liquidity? Do I need to inject more funds in the scheme?

Business Operations Teams need to understand how many payments and for what amount have been sent through the scheme to ensure there is enough liquidity and inject more funds in the scheme if needed.

Regulatory and operational risk

• Do I have high rejection rates? From where? The scheme? A payee? Which types of rejections? Insufficient funds? Time-outs?
• What is my current transaction throughput? If I send too many debits into the scheme, when will the corresponding credits arrive?

The Business Operations Team might need to understand why the volume of rejected customer payments is unusually high so they can investigate the problem and resolve it promptly. Another typical case is when the Business Operations Team identifies the “turnaround time” of another participant bank is degrading and taking more time than the expected X seconds. In this case, the team needs to communicate with the counterparty to warn them of potential degradation in performance leading to payments being rejected that will affect multiple customers

As an example of the rejection-rate issue, say on Monday morning, the team identified a high rejection ratio on outgoing payments. In this case, the Operations Team needs to check with IT to see if it is due to the weekend’s system upgrade or if there is another issue. This kind of situation needs to be resolved immediately before impacting all customers and ending up on the front page of the newspapers like Lloyds on January 2013: “Lloyds suffers Faster Payments System Problems.”

Today isn’t good enough. I want it now!

The Euro Retail Payments Board (ERPB) has defined instant payments as electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation). This is irrespective of the underlying payment instrument and arrangements for clearing and settlement that makes it possible. So regulation is driving payments to occur now, not just today. For instant payments, the primary focus is on the customer experience.

Real-time analytics for instant payments

A great customer experience means ensuring instant payments continuously meet SLAs for customers, partners, and regulators. To meet this objective, you need to improve situational awareness and monitor immediate payments activity in real time to answer questions like:

• Are the mass-market customers well-served (to avoid “Twitter effect”)?
• How well am I serving my VIP customers specifically?

Real-time analytics can notify the Operations Team of an increasing response time for payment settlement, and provide early warning of infrastructure capacity issues prior to alerts from technical monitoring. Again, the earlier these issues are identified, the more time the Operations Team has to address them prior to negative impact on a larger customer group.

How to monitor change

The migration from traditional payment schemes to new immediate or instant payment schemes introduces challenges to the performance of the business in terms of revenue. It is important to keep your eye on the ball and monitor changes in customer behavior.

As they change to faster settlement schemes, the objective is to make sure customers are maintaining transaction volume. Real-time analytics can alert Customer Relationship Managers of reduced total transaction volume or transaction amount, prompting them to investigate potential movement due to missed quality expectations and SLAs.