Setting Up to Succeed With Real-Time Payments


With FedNow launching this July, successful implementation of real-time payments systems will require banks to test both the technical and operational side of their operations. In a previous discussion with PaymentsJournal, Form3 touched on the importance of banks having not only the technical aspects in place, but also transaction reporting and operational considerations.

Testing early is key to ensuring that both real-time payments (RTP) and FedNow functionalities operate at their peak, delivering on the benefits they set out to bring. During a recent PaymentsJournal podcast, Miriam Sheril, Head of Product, US, at Form3, and Steve Murphy, Director of Commercial at Javelin Strategy & Research, discussed why testing — which is typically an afterthought for many banks — should be more of a priority.


Test, Test, Test: Setting Up to Succeed With Real-Time Payments

PaymentsJournal Test, Test, Test: Setting Up to Succeed With Real-Time Payments

The Importance of Being Agile

The race to ubiquity for real-time payments should not just involve throwing money into the latest technology to support real-time payments. Careful testing early on should be at the forefront before full implementation can happen successfully.

“It’s not just having the best technology and technology that’s fit for purpose, but it’s also how you go about your entire project and life cycle of getting that technology in place,” said Sheril. “Testing becomes an afterthought for banks – and for all companies, frankly.”

“They build it, they do their documentation, they work on the operations around it, they implement the ecosystem [of tools needed (like a UI)] around the new solution, and then start testing it end-to-end and find issues — whether it’s a technical error that’s wrong or the procedure that’s wrong,” she said. “[They find those issues] late in the game, which means they have to go back and fix it. It’s more costly, it takes more time, and it’s difficult.”

“For real-time, if you wait until the end to do all this testing, you’re going to end up having an issue. Your project might end up getting pulled if it costs you double the amount of time to fix that. Being an afterthought is a mistake in this new agile world. For real-time payments specifically, you can’t do it so late because it’s 24/7, it’s all brand new.”

According to Sheril, RTP and FedNow won’t interoperate, so even if a bank is on RTP, if it wants to receive the FedNow payment, it’ll have to connect and get its solution working for FedNow. “There are similarities, but there are also differences, and you have to test those differences,” she said. “If there are enough differences, that means you need to adjust your solution and you need to test how that solution works for FedNow.”

“There are some things that should be the same, and banks should try to make them the same so they don’t have to retest. Hopefully, many banks can align to whatever they’re doing for RTP, if they’re already on RTP, in which case, light touch testing might be appropriate. This is another example of where testing earlier will help you. The only way to know that it’s going to be the same is if you test it as early as possible. This is the shift in mindset that we need to see happen so we’re not all facing the issues later in the game.”

Rethinking Testing Strategies for Real-Time Payments

Although real-time payments have already been around for roughly five years, it’s still a new process that has plenty of room for error. That is why preventative maintenance in the form of early testing is necessary.

“Real-time is interesting, there’s the good and the bad,” said Sheril. “The good is that it is brand new, and brand new is helpful. You’re not building or adjusting something that’s already in production. Since RTP and FedNow are new, those who are implementing it are implementing new solutions, new systems. Many are using it as an opportunity to do their first stage of modernization and put in a new core just for this. That gives them a little flexibility because they’re not worried about breaking something that already exists. The flip side is that it is brand new. Brand-new things can also be risky.”

When it comes to testing, there’s the technical aspect of it and there’s the operational part — with each having its own level of difficulty, according to Murphy.

Sheril agreed. “That technical piece, it’s kind of the same for everyone,” she said. “The gateways provide messages; they put rules and different error codes around the messages. It’s not very nuanced. You can build and test that pretty early on and use an experienced service provider, who can test that holistically for everyone, and it doesn’t have to be nuanced.”

“When we go live with our RTP solution, we’ll have tested the gateway piece. Holistically, it’s going to work because if it works with one bank, it works for the other bank. Then there’s that whole second part of it that’s really specific to each bank and each customer. How do I plug it into my operations, into my core banking, into my resiliency posture, my risks, etc.? And that has to be tested as well,” she added.

“I have to test that my operations team, who suddenly had to go 24/7, can support that 24/7, that they know what to do when [an] alert comes out, that they can follow those next steps, that they can get the money to where it needs to go and make the funds available [if an exception occurs] — and that part’s harder.”

The Testing Process for Banks

When it comes to testing, it will largely depend on the type of use cases carried out — and also depend on the bank. It’s not a one-size-fits-all approach.

“If you’re a bank that has a lot of bill pay that you support, you’re going to test the request for payment flow,” said Sheril. “Not every bank’s going to do that. But at the end of the day, there’s a set of messaging that these schemes provide and you test those. Form3 is going to test all of them and have them ready and available whether you use it or not. It’s going to depend on what core you use, and what your operations procedures look like. It’s going to depend on how you integrate into other systems within your environment.”

Learn more about Form3’s instant payments testing simulator here.

Will FedNow Revamp Testing Methods?

For those who have already implemented real-time payments, the testing methodology is probably already there, and it may need to be adjusted.

Those who are waiting for the launch of FedNow have a golden opportunity to start on the right foot, honing in on the end-to-end process.

“If you’re a bank that’s been on RTP, you’ve done that, you have a head start, and it’s not that different,” said Sheril. “There are differences so you should test that gateway differently, but your end-to-end processes should be pretty aligned.”

“If you haven’t been on RTP and you’ve just been waiting for FedNow, this is something that’s brand new,” she said. “You have an opportunity to do this differently. You don’t have to go in and touch something that’s already in production. Anytime you can start something from the scratch, you have an opportunity to do it right and really focus on end-to-end process.”

“Consider a modernization effort. We have seen a few banks who have said that for real-time being new in the U.S., the volumes haven’t picked up yet. It’s also an opportunity for me not to just put in a new gateway scheme connection, but a new modern core.”


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