Instant Payments Are No Longer a Nice-to-Have. Are Your Core Systems Ready?

According to Juniper's Jon Budd and Jorge Jimenez, the launch of FedNow was only a first step in helping U.S. financial institutions catch up to their international counterparts when it comes to instant payments for retail and business customers. Major obstacles remain, including aging legacy core systems and outdated practices. How can banks and credit unions create a technology roadmap to successful payments modernization?

Consumers are accustomed to seamless, instant money movement in many of their digital interactions. Yet, lagging systems modernization at many financial institutions has created friction and opportunities for nonbank disruptors.

To shed light on how banks can successfully navigate this payments transformation, we spoke with two executives from Juniper Payments: Jon Budd, the chief executive, and Jorge Jimenez, the president.

Juniper provides cloud-based transaction processing for more than 1,500 banks, credit unions, and fintech firms, handling $1.2 trillion in payments annually.

In the following Q&A, Budd and Jimenez share their insight on the forces reshaping payments and offer some advice to financial institutions seeking to keep up with consumer expectations. Their conversation is with Jim Marous, founder and chief executive of the Digital Banking Report and co-publisher of The Financial Brand.

Drivers Reshaping the Payments Landscape

Q: What key shifts are driving the transformation in payments?

Jorge Jimenez: Consumers now expect fast, simplified digital experiences from services like Venmo and PayPal. This has created tension as financial institutions play catch-up. There’s a clear trend toward facilitating instant payments, originating abroad and now gaining traction in the U.S.

This evolution will take time here since we lack legislative mandates. However, offering real-time capabilities is becoming imperative for banks to remain relevant in consumers’ lives.

Jon Budd: Today’s consumers face constant bombardment with attractive offers from challengers and disruptors. This leads to “silent attrition” as customers readily adopt new fintech solutions while maintaining legacy relationships. Their business steadily diversifies across vendors, progressively diluting loyalty.

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What are the Bottlenecks in Modernizing Payments Systems?

Q: Where do we currently stand in adopting faster payment capabilities?

Budd: We’re at the very beginning. The Federal Reserve’s launch of FedNow this summer is more of a starting line than a finish line. The Clearing House’s RTP system has existed for a few years, but overall adoption remains limited. Upgrading legacy batch systems at banks is no small task.

It requires entirely modernizing core processors and partner systems to enable real-time posting and 24/7/365 availability. This overhaul will unlock opportunities we likely can’t even envision yet. However, managing this magnitude of change presents very real near-term hurdles for financial institutions to clear.

Q: What unique challenges do small banks and credit unions face?

Budd: The interface to core systems needs upgrading. Most still operate in traditional overnight batch mode, debiting and crediting accounts in a delayed fashion. Delivering funds instantly requires integrating new rails like FedNow or RTP into transaction flows. This means partnering with capable technology providers. Small institutions can’t realistically tackle this independently.

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Emerging Real-time Capabilities and Opportunities

Q: How will emerging payment rails reshape banking?

Jimenez: Ubiquitous real-time infrastructure unlocks flexibility in routing transactions based on specific contextual needs rather than rigid rails. If speed and settlement finality are paramount, new instant systems like FedNow or RTP will increasingly get selected as options. For non-urgent transfers, legacy next-day ACH rails may still provide the best fit. The key is combining and integrating both old and new networks based on variables for each transaction. This requires smart, dynamic routing capabilities.

Budd: Cloud-based automation will also prove critical to enabling this evolution. Cloud allows nimble deployments so all users stay current on the latest capabilities and features. Automation then steps in to route each payment with optimal cost, speed, transparency, and risk characteristics based on amount, settlement urgency, recipient validation, and other factors.

This level of dynamic optimization was impossible in the past when humans manually orchestrated disjointed systems one transaction at a time. Now, modern payments software can seamlessly interlink networks on behalf of users to unlock intelligence and efficiency.

Q: What current customer payment frustrations should banks prioritize solving?

Jimenez: Easy digital account-to-account transfers should rank among the top concerns — both peer-to-peer as well as business. Customers have flocked to nonbank services like PayPal and Venmo for convenience. However, funding accounts and withdrawing money from these apps often proves difficult and costly. Banks must take action to provide their own integrated digital money movement platforms leveraging new rails to retain relevance.

If speed and settlement finality are paramount, new instant systems like FedNow or RTP will increasingly get selected as options.
— Jorge Jimenez, Juniper Payments

Budd: Expectations have changed. Consumers express bewilderment when payments still take multiple days, especially for internal transfers between accounts at the same institution.

At the same time, smaller banks shouldn’t succumb to panic that customers will defect en masse without instant transfers today. This remains more an emerging expectation than a current requirement. Banks need to judiciously budget and plan for modernization while proactively educating consumers on evolving capabilities coming soon.

Q: How can open banking and APIs help with this transformation?

Jimenez: Open banking allows third parties to access consumer financial data through public APIs. This radically simplifies connections between disparate systems, including core providers that have resisted opening up customer data access in the past. As an aggregator bridging many bank and fintech systems, we must integrate siloed technologies efficiently to power seamless digital money movement. Open banking gives us a faster pathway to universal interoperability, which is critical for real-time payments.

Q: As you look ahead, what emerging payment capabilities most excite you?

Budd: The ease of private digital transactions between strangers will improve immensely. As an example, paying a seller for a large online purchase will increasingly become instant, transparent, and irrevocable. Both parties will validate transfer and receipt rather than relying on archaic wires or cashier’s checks. Even service business hours could expand thanks to the assurance of real-time digital settlement.

Jimenez: Smaller institutions will gain sophisticated large bank capabilities. Combined with an open architecture to plug and play with fintech apps, even community banks and credit unions can become “nationwide supermarkets” of financial services. This democratization levels the playing field. The combination of speed, reach, and open infrastructure presents an exciting and unprecedented opportunity to expand financial inclusion.

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Next Steps for the Banking Industry

Q: What advice would you offer financial institutions navigating this journey?

Jimenez: Study deposit outflows to Venmo and fintech apps. This quickly reveals the revenue vulnerable to loss from delays in payments modernization. Customer-centric innovation must become strategic, not just tactical.

Budd: Don’t panic. This evolution will take time. But start planning now, educating customers and training staff. Second, focus on the opportunity to differentiate with enhanced services tailored to local small businesses. New payment speeds and flexibility provide real value to underserved segments. Finally, leverage third-party providers to implement change quickly, rather than attempting to build from scratch internally.

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