Real-time Payments Are Exploding. Here’s How Banks Can Catch the Wave
By Chris McGee, Managing Director for AArete
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Executive Summary
- Demand for real-time payments in the U.S. has lagged the rest of the world but is poised for explosive growth.
- Fintechs have moved quickly to carve out real-time payment products and solutions, but traditional banks and credit unions have been slow to get into the game.
- A focus on specialized payments products for vertical markets can grant traditional institutions quick entry to this burgeoning market, while delivering important learnings and early wins.
Real-time payments accounted for 266.2 billion transactions globally, according to a 2023 report. Yet, in the U.S., real-time payments only accounted for 1.5% share of the total payments volume. Despite this lag in adoption, the demand for real-time payments in the U.S. is growing, and fintechs have taken the lead at specializing in the payments market focusing on specific industries, sectors and services to position their technology products. For example, fintechs partner with ticketing vendors, grocery store chains, gaming companies, retailers, healthcare providers, travel sites, hotel chains and more to create brand awareness and bring value to their customers.
For banks and credit unions of all sizes, it is not too late to get involved in adopting payments strategies and specializing payments business in specific areas of the ecosystem. As customer behavior shifts, financial firms must adapt to retain customers and meet, or ideally exceed, their payment expectations.
Payments specialization is an accessible starting point for traditional banks and credit unions to enhance customer experience. While a narrow focus may seem counterintuitive for institutions that have long aimed to serve broad and diverse communities, customers today demand both the value and convenience that specialization can provide.
Specialization as a Strategic Imperative
Payments specialization in this context involves banks identifying verticals they can own to build brand awareness and meet customers where they are. Fintechs are succeeding at this by focusing on luxury retail, events or gaming and developing highly effective payment solutions in these areas.
Traditional institutions have a similar opportunity to center their strengths on specific segments where they can add the most value. Banks and credit unions often have deep relationships with existing customers, granting them access to data that provides customer insights and knowledge of regional and local markets. This background positions traditional financial institutions for success in identifying the specific vertical that would best connect with current customers and lead to new customer interactions.
Entering the payments ecosystem through specialization does not require a complete overhaul of an institution’s core offerings or infrastructure. With the right approach, payments can move from a transactional function to a strategic differentiator.
Fintechs Are Already Specializing
Rather than build solutions for the entire market, many fintech companies concentrate on specific industries to deliver customized payment experiences for defined audiences. They do this by identifying underserved verticals and forming strategic partnerships that are designed with the unique needs and workflows of specific industries.
Customers purchasing concert tickets can check out instantly with a preferred method of payment. A patient can make a payment and file an insurance claim through a provider app that connects directly to their electronic health record. This approach provides a seamless and convenient customer experience. These targeted solutions drive higher engagement and encourage repeat use.
Vertical specialization enables fintechs to understand the behavior, timing and emotional cues that influence spending. Their ability to create seamless, tailored payment experiences within targeted sectors can result in frequent customer engagement and stronger brand loyalty. This approach is a strong model for traditional banks looking to compete more effectively through focused, use-case-driven payments strategies.
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The Opportunity for Traditional Financial Institutions
There are a number of successful examples of large banks specializing in travel and live event payments by partnering with companies in those areas. This provides a blueprint to use in virtually any industry or service area. For example, Chase is involved with live events and offers customers exclusive experiences and perks such as early access and preferred seating. They also have promotions for specific events that offer cash back opportunities. Capital One’s Venture Rewards travel credit card allows customers to earn miles when they use the card to make purchases.
For regional banks and credit unions, focusing on the regional and local markets where many of their customers reside is a primary strategy to evolving payments specialization. They should consider the businesses and payments that customers make in those regions and how payments can be better handled through adoption of new payment trends.
Unlike national fintechs, regional and community banks benefit from local insight and a unique understanding of the region they serve. Conventional institutions have rich customer data, offering insights into how people spend, when they pay and where they conduct business. Specialization involves transforming data into a winning strategy by identifying meaningful opportunities in defined communities or sectors and providing solutions.
Specialization can take shape by focusing on clearly defined payment use cases rather than broad customer segments. Examples of use cases include payments for local contractors, gig worker payouts, instant transfers between friends and family, rent and real estate closing transactions and service payments to local businesses.
To start building a payments strategy, traditional financial institutions should identify the most common payment flows within their footprint. Then, focus on partnerships where speed, convenience and security could create value for local industries and customers. Data and knowledge of the local market should drive these partnership decisions.
Modern customers are contending with fast-paced lives that limit their time and patience, particularly for complex financial tasks. In this context, the one-size-fits-all approach of traditional banks can limit potential growth. To remain competitive, targeted and thoughtful innovation is necessary to provide payment solutions that meet the needs of busy consumers.
Specialization is an opportunity for growth that does not require excluding existing customers or compromising the mission. Offering focused, relevant solutions can actually broaden an institution’s appeal and create stronger, more loyal relationships.
Banks become indispensable financial partners when they keep pace with the evolving needs and expectations of their customers. Specialized payments are a practical and high-impact strategy for banks and credit unions to differentiate themselves, expand their influence and drive growth. When payments are delivered with consistency and customer-centered service, they make institutions synonymous with convenience and trust, an essential differentiator that deepens loyalty and retention.
