Banks are under a lot of pressure to rapidly add real-time payment settlement, though UMB Bank says it’s more important to have a plan in place than to race to the finish line.
“It’s a way to think about the process of development instead of just saying ‘let’s deploy real-time payments,'” said Uma Wilson, chief information and product officer at the Kansas City bank.
The $33 billion-asset UMB is not currently on the Clearing House’s RTP rail, but the bank is actively building a road map for deployment that it will unveil in the fourth quarter. UMB is also developing its strategy to adopt the government-backed FedNow rail, which is expected to launch in 2023.
Wilson, who has worked at UMB since 2006 and took on her current role in late 2021, recently received more responsibility to oversee technology and product development. That includes adopting real-time payments, an advancement that is occupying the time of executives at both large banks and smaller community institutions.
UMB is taking a gradual approach that considers real-time payments in the context of all of the bank’s digital payment rails, and what types of digital transaction technology will be necessary following the dramatic uptake of digital commerce over the past two years. “We’re rethinking what we need in an ACH system and how that connects with our payments system,” Wilson said.
There are plenty of voices in the financial technology community who are urging banks to embrace real-time payments as fast as possible. Real-time payment systems also have the potential to guard against recession by allowing business clients to hedge against the impact of tightening supplies and increasing costs due to inflation.
UMB is not an early-adopter, but is instead forging a strategy based on an internal development model in which product and technology staff are brought into close alignment to determine how the bank’s clients needs intersect with the promise of new innovation.
Supplying treasury management service to midsize companies is a major part of UMB’s overall business, and the demand for instant settlement from these clients may not be as great as it is for the biggest companies, according to Wilson.
“A lot of large Fortune 100 companies want to connect payments through [application programming interfaces],” Wilson said. “But the mid-section of corporate America is slowly making progress in that area. We are going to be rolling out the concept of opening a commercial account through APIs, though they will need to be simpler.”
The bank has built a library of APIs that can connect clients to real-time payments and other services such as health care payment cards, supply chain finance and balance management.
During the past year, UMB has reorganized technology development by combining the bank’s product and technology teams to gain insight into how improvements in digital banking and other innovation meld with real-world objectives and business challenges.
This strategic shift at UMB includes a payments hub that determines how a new payment innovation can be used externally — and if that fits into its clients’ plans.
“Banking used to be a matter of ‘this is our product and this is how we want you to consume our product,'” Wilson said “That model is long gone, and it’s really the other way around now. We are trying to see how it works in the client’s operating model.”
Real-time payment processing costs more than same-day processing and traditional wire transfers, which will likely result in businesses adopting a mix of processing speeds, with real-time payments being used to address issues such as liquidity and overdrafts.
Dwolla, for example, has said the recent increase in the same-day ACH limit to $1 million covers many of the use cases that are a fit for faster payments, leaving real-time payments an alternative option that covers specific cases, such as when a payment is required instantly to trigger the release of equipment required for a project.
The relatively slow pace in U.S. bank adoption of real-time payments is partly due to that lack of a commitment that each bank be able to send and receive RTP transactions in real time, according to Gareth Lodge, a senior analyst for global payments at Celent.
“As a result, it’s been a slow start to say the least,” Lodge said. “That’s made the decision tricky for mid-sized banks. Their largest clients will be targeted by the bigger banks for example.”
There is also an advantage to not being first, Lodge said. Many banks are fast followers, and UMB’s pace to build real-time payments is not necessarily slow when compared with the entire U.S. banking industry, where about 200 banks are currently on the RTP rail, he said.
“It’s as much about arriving at the right time, as arriving first,” Lodge said.