Real-time payments will be the next significant challenge for mid-tier banks in the U.S. More than half (59%) of mid-tier bank business customers believe their use of real-time payments will increase in the next year, prompting banks to make substantial investments to meet these needs.
According to data from Volante’s Mid-Tier Bank Payments Report, the majority of mid-tier banks plan to invest between $5 million and $20 million to ramp up their payment technology. These investments are key to compete with larger banks, which have the resources to invest billions. Volante defines mid-tier banks as those with assets ranging $3 billion to $100 billion.
Real-time payments capabilities directly address these banks’ goal of providing customers the nimble money management they need. Combined with the ISO 20022 messaging standard, smaller banks also have the opportunity to deliver enhanced analytics and insights tailored to their customers’ payment needs.
The survey found an ongoing shift in the debate over adopting the newer FedNow system, The Clearing House’s RTP network, or a combination of both for real-time payments. Mid-tier banks are increasingly leaning toward FedNow, with 43% planning to adopt the service within the next year, up from 29% the prior year. Meanwhile, plans to adopt RTP have dropped from 41% last year to 28% this year.
A separate report from SRM revealed that just 6% of U.S. financial institutions are participating only in FedNow, 3% solely in RTP, and 4% in both. As smaller banks venture into real-time payments, they must also decide whether to operate in receive-only mode or to both send and receive payments. According to Volante, most banks will likely end up offering both.
Moving Toward ISO 20022
ISO 20022, a key component to facilitating real-time payments, is already in widespread use. While 17% of mid-tier bank clients are already utilizing this messaging format, 45% have plans to adopt it in the future.
ISO 20022 messaging allows for the transmission of detailed, structured information alongside payment instructions, unlocking new possibilities for automated processing, improved reconciliation, and advanced analytics. Both FedNow and RTP rely on ISO 20022 messaging, which is expected to enhance interoperability not only within the U.S. but also with international real-time payment systems.