In recent years, the financial services industry has undergone rapid transformation, primarily driven by advances in payment technology and the increasing demand for speed, convenience, and security in transactions. Instant payments have become a critical component in this evolution, providing financial institutions (FIs) with the opportunity to deliver real-time financial services that meet the changing expectations of their customers. Meanwhile, fintech innovators like MoneyLion and Gusto are making waves by offering digital wallets and embedded financial services, capturing a significant portion of the market traditionally held by FIs.
The Power of Instant Payments Data
Instant payments offer more than just speed—they provide valuable insights into customer behavior, spending patterns, and financial needs. By analyzing this data, FIs can better understand their customers or members and tailor products to meet real-time needs. In the webinar, Strategic Growth: How FI Execs Can Leverage a Payments Hub, Neeraj Gupta, SVP of Product Management at Alacriti, explained the potential of instant payments, “Payments hubs can yield tremendous data insights that help inform new product ideas and cross-sell opportunities by tapping into latent demand.”
By analyzing the patterns revealed in instant payments data, FIs can identify customer trends such as:
- Frequent transfers to investment platforms – If the data shows that a large segment of customers is regularly transferring funds to a particular investment platform, the FI could respond by offering tailored investment advice or launching a co-branded savings or investment product.
- Recurring payments for subscription services – Customers making recurring payments to specific merchants could be offered targeted rewards programs or loyalty benefits tied to those transactions. This level of customization is critical at a time when consumers expect personalized financial solutions that cater to their specific needs.
- Regular use of specific payment types – Financial institutions can gain valuable insights into their preferences and habits by analyzing how often customers use particular payment methods. For instance, if customers frequently use digital wallets, contactless payments, or mobile transfers, the institution can prioritize enhancing these payment options to offer a smoother, more tailored experience. Additionally, FIs could create targeted campaigns or incentives to promote specific payment methods that align with customer behavior, ultimately increasing usage and engagement.
With the right use of instant payments data, FIs can quickly adapt and offer products that resonate with their customers, enhancing engagement and increasing loyalty.
Risks of Inaction
The risks of not leveraging instant payments data are significant. Fintech companies like MoneyLion and Gusto are already capitalizing on the demand for digital financial solutions by offering services like digital wallets, which allow customers to manage their finances more conveniently. These digital wallets not only provide users with a simple way to manage their money but also embed a wide range of financial services, from saving and investing to borrowing and spending—all within a single platform.
As these platforms gain popularity, they reduce the reliance on traditional FIs for everyday financial needs. Hence, FIs could see a decrease in transaction volumes, lower customer engagement, and ultimately, a reduction in revenue. “Fintechs continue to aspire to own the customer experience, leaving FIs at the backend. Without acting now, traditional institutions will find themselves struggling to stay relevant,” Gupta stated.
As customers move more of their financial activities to these digital wallets, FIs risk losing out on the valuable data generated by these transactions, further hampering their ability to innovate and compete. Without this data, institutions will find it challenging to innovate and offer the personalized services that today’s customers expect. Gupta shared data supporting this. “57% by dollar volume of incoming instant payment transactions for one of our East Coast-based financial institution clients came from consumer cash flow apps like Uber, Grubhub, InstaCash, and Wage Stream.” In comparison, the benchmark across Alacriti’s other clients was only 18%. This reveals the potential scale of the opportunity available through leveraging instant payments data.
Creating New Services to Compete
To mitigate these risks, FIs must act swiftly. As Gupta emphasized, “A payments hub allows for rapid time-to-market with new initiatives and the ability to progressively modernize, which is critical in today’s fast-paced financial landscape.”
One of the most effective ways FIs can compete is by developing their own digital wallets or integrating with existing digital wallet platforms. By doing so, they can provide customers with a holistic financial management experience that includes savings, spending, borrowing, and investing—all within a single app. In addition, by offering real-time financial insights and tools like budgeting features, investment advice, and instant access to credit, FIs can not only retain their existing customers but also attract new ones seeking a more comprehensive and integrated approach to managing their finances.
Furthermore, the data gathered from instant payments can help FIs identify opportunities for growth by tapping into unmet customer needs. For example, institutions can use this data to develop targeted products for specific customer segments, such as gig economy workers, small businesses, or young professionals. By understanding how these groups use instant payments and what their financial needs are, FIs can create customized solutions that meet those needs, helping to drive engagement and foster long-term customer loyalty.
Gupta provided additional insight during the webinar, sharing that another financial institution client saw 14% of their instant payment transactions coming from digital wealth management apps like Robinhood and Wealthfront, compared to a benchmark of 8% across other clients. This data allowed the FI to explore new wealth management offerings to better serve its customers.
Collaboration as a Strategic Advantage
In addition to developing their own digital wallets and services, FIs can enhance their offerings by partnering with fintech companies. Collaborating with fintechs allows FIs to take advantage of innovative technology and customer-centric solutions without having to develop everything in-house. For example, by partnering with a fintech that specializes in digital wallets or instant payments, FIs can offer their customers cutting-edge financial tools while maintaining the trust and security that come with a traditional bank.
This approach not only enables FIs to stay competitive but also allows them to focus on their core strengths—managing risk, ensuring compliance, and delivering excellent customer service. A well-designed payments hub can integrate seamlessly with an FI’s existing ecosystem, enabling them to offer new services while leveraging the fintech’s expertise in areas like user experience and digital engagement.
By leveraging the power of instant payments, developing integrated financial services, and exploring strategic partnerships with fintechs, FIs can remain competitive and continue to meet the evolving needs of their customers.
Learn how to drive innovation with payments hub in the webinar, Strategic Growth: How FI Execs Can Leverage a Payments Hub.
Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP® network, Visa Direct, and the FedNow® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com
