Diving Into Instant Payments and Community Bank Roadblocks

Financial institutions have three essential roles: the ability to store money, lend money and move money.

That last capability has been a sleepy feature for most community financial institutions for decades. They moved money from a customer’s checking account, processed a loan payment or bill or accepted a deposit. But the recent introduction of instant payments networks has been the biggest innovation in the space in 40 years, says Peter Davey, a venture partner at community bank consortium Alloy Labs, on this episode of Reinventing Banking. Davey comes to Alloy Labs from The Clearing House, where he was the head of product innovation and labs and was an architect involved in designing and launching RTP, the first real-time payment system in the U.S. The Federal Reserve followed up with this year’s launch of FedNow. 

But the rapid pace of innovation in the payment space, coupled with the technology challenges,  means many community banks haven’t implemented these capabilities. 

Davey breaks down the variety of payment types and why instantaneous payments are different from today’s popular options. He talks about why payment innovation is tough for community banks and what they can do to take the first steps. 

“I think a lot of community bank CEOs have transformed their thinking into looking at it as truly a revenue play,” he says. “But they can’t play in the revenue game if they don’t actually control some of the experiences that their customers have, or they don’t have the ability to integrate.”

Davey also has some advice for executives at community financial institutions that are wondering how to explore enhancing their payment capabilities in 2024: Make sure you own your data, explore the new technology and vendors that can assist with this and don’t be afraid to get creative to work around and with your core.

“Instant payments are the wave of the future,” he says. “Don’t be afraid to be a little bit more bold. Look for other opportunities within your financial institution where you might be able to leverage these.”

This episode, and all past episodes of Reinventing Banking, are available on FinXTech, Spotify and Apple Music.