The mechanics of moving money requires a team of players: merchants, banks, software providers, and regulators, all have a unique and crucial role in getting funds from point A to B. To exercise high-volume transactions in real-time, guaranteed reconciliation can determine whether a small business can keep its lights on or close shop.

In this episode of the Paytech Show, we explore the process of payments reconciliation and why automation is the most reliant tool when ensuring million-dollar transactions are paid in full and on time. Joining us in conversation we have Hugh Burden, the Head of Sales at reconciliation software provider, AutoRek, and Somya Patnaik, the Principal Product Manager at ACI Worldwide. Both explain the challenges financial services providers face when it comes to cross-border and real-time payments and how they can keep up with the rapid introduction of new digital payment avenues.

“There is a need for automated reconciliation platforms that will solve not only the volume-related complexities but other operational inefficiencies that banks are facing today,” said Patnaik. “The payment systems, the payment infrastructure, and the payment solutions need to be scalable and agile enough to support the volume explosion that is coming up.”

Payment volumes are only going to get bigger, and financial institutions cannot rely on outdated and manual systems to act at the rate which is expected by modern consumers.

“Most payment companies are technology companies,” explains Burden. “They have spent a huge amount of money on that customer acquisition piece, and that’s sometimes been at the expense of the back and middle office. We still find large financial companies who are reliant on excel or a self-built platform.” Such reliance only provides more difficulties for institutions to deal with, diverting time and money which could be spent elsewhere.

When processing cross-border payments, companies are confronted with additional pain points distinctive from domestic. Foreign exchange rates, regulations, and dealing with interfaces from other jurisdictions, all exacerbate the core systems of incumbents. This, paired with the growing digital presence in online customer interaction, indicate that fundamental changes in core banking systems are necessary to facilitate and reconcile this next generation of payment types.

For Patnaik, the future is promising. The introduction of ISO 20022 and Faster Payments will encourage financial institutions to digitalise and integrate automation more succinctly into their systems.

“The next few years are going to be implementing those strategies, transforming technologies, driving innovation, and basically as an ecosystem, we will be reaping the benefits,” she said. “Efficiency in reconciliation is a challenge, and that will continue to grow with higher volumes. But we are seeing central schemes take more control over regulatory requirements.”

See our 2019 RTP Readiness Report: https://bit.ly/2VpEBSB

Read our 2019 RTP Implementation Guide: https://bit.ly/2FWBfkl

See our RTP architecture vlog in its entirety: https://www.levvel.io/blog/real-time-payments-architecture

See our RTP product and design vlog in its entirety: https://bit.ly/2wus5pL

See our RTP strategy vlog in its entirety: https://bit.ly/2Uas2Oo

For banks looking to integrate with TCH’s real-time payment system, at a high level, they have a couple of options. One option is to integrate directly into the TCH RTP rails, and the other option is to integrate through a third party service provider, also known as a TPSP. So, some factors that will influence which option a bank chooses to integrate with include things like looking at your existing architecture and determining how RTP is expected to be treated.

Is it just another payment rail or is it part of a much bigger enterprise strategic effort? Also, what are your key vendors in the payment space and what are their capabilities? Do they have a strong RTP offering? Another question to ask yourself is, do you have a payments hub? If you do, that’s a very natural integration point to tie RTP in. If not, then consider your key vendors in the payments space for things such as ACH wire, etcetera, and since they are already integrated into your environment, it’s a very natural question to ask.

Do they have a strong RTP offering and have you looked at their offerings to evaluate how well they would fit with your enterprise? Another key question to ask yourself when you’re looking at these options is what is your organizational preference on solutions? Is it to build or to buy? If your preference is to buy, then you’re going to want to look at using a third-party service provider.

If your preference, however, is to build to maintain maximum flexibility, you have a couple of options. You can definitely connect directly to the TCH RTP rails or you could consider more of a hybrid-type option where you use a more lightweight TPSP who will connect to the RTP rails on your behalf, and then expose to you all the messages so that you can then build and implement that core RTP processing logic, which then integrates with your existing systems.

To go a bit deeper, integrating directly into the RTP rails involves establishing the required connectivity between the bank and TCH. Whereas if a bank chooses to integrate through a third party service provider, then it is the TPSP’s responsibility to connect to TCH. Depending on the particular third party service provider, they often will do more than just provide the connectivity to The Clearing House.

TPSPs can assist your institution with other activities such as conducting message format and syntax validations, validating messages for cryptographic correctness, interacting with other systems within your organization as needed, and also logging messages, and then providing some way for you to view those later through something like an operational dashboard. The TPSP can provide a lot more than just connectivity, and because they are adding this core RTP processing logic as well, it can save your institution quite a bit of time and effort in your RTP implementation.

Discover the impact real-time payments have on the card market, cash and checks. Learn how the U.S. intends to catch up with other global markets using FedNow and see real-time payment growth forecasts in this in-depth video.

At the Finovate Spring 2022 conference in San Francisco, FinTech Futures sat down with Mike Jorgensen, head of emerging solutions at US Bank, to discuss the growth and development of real-time payments.

Watch the video to discover:

– The top real-time payments trends across financial services.
– How US Bank has looked to implement RTP.
– Key use cases and applications of RTP.
– What the future holds for the payments space.