Fintech leaders say a recently unveiled open instant payment system formed by a consortium of community banks demonstrates how smaller financial institutions must adjust to more customers seeking those services.
The system, CHUCK, lets customers make instant payments from their desktop or mobile banking app, according to Forbes senior contributor Ron Shevlin. Currently, other payment systems — Venmo, CashApp and Zelle — are closed loops, requiring both the sender and receiver to use the same service. The network, to be integrated into community banks’ mobile banking apps, is expected to ease the need for consumers to move money between apps or log into their bank accounts to check their balance. Payments can be routed via automated clearing house and real-time payments, cards and other payment networks. Person-to-person payments will be the first service rolled out by the new network, Shevlin reported, but the consortium expects business-to-consumer and business-to-business services will soon follow. Shevlin noted that faster payments is one of the top trends in banking and fintech for next year: According to a new Cornerstone Advisors study, nearly one-in-three banks and 24 percent of credit unions plan to implement real-time payments in 2022.
Alloy Labs Alliance CEO Jason Henrichs noted community banks must adjust to compete with the largest banks in the digital arms race without competing with more prominent instant payment systems solely by imitating them at a lower price point. Instead, Henrichs said his firm prioritized evaluating the marketplace of people who were being left out of traditional banking.
Michael Bilski, CEO of Minnesota’s North American Banking Co., said standalone instant applications and automated clearing houses are the best option for banks. Roseville-based North American partnered with United Bankers’ Bank, Bloomington, Minn., on a P2P app that launched two years ago. The app allows users to originate text messages or emails. The receiver then puts in their name, looks up their account number, and credit pushes within 24 hours.
Despite the success of instant payments, Bilski is aware that such platforms are not commonly in use at community banks. Some banks are struggling to connect to current instant payment networks like Venmo. The recently unveiled FedNow Service is an instant payment service Federal Reserve Banks are developing to allow all financial institutions to develop such platforms. Though Bilski is aware that some community banks are comfortable waiting to be the last to adopt instant payments, he believes delaying action will cause them to lose customers who seek the instant service.