Positioned as a way for banks to tackle the challenges of cost, speed, and transparency in payments, The Clearing House (TCH) announced the launch of its Real Time Payment (RTP) infrastructure in November. Will it succeed? The jury obviously is still out, but here are some facts (and a few opinions) to help you begin evaluating whether or not this payments infrastructure is right for your institution.
1. Is Real Time Payments really coming?
It’s already here. The Clearing House’s 25 owner banks, working to meet the objectives of the Federal Reserve Faster Payments Task Force, started testing late RTP in 2016 and piloted it in first quarter of 2017. On November 13, BNY Mellon and U.S. Bank initiated the first ever real-time payments.
On December 5, Finastra announced that PNC is live on RTP using Finastra’s payment services hub, Fusion Payments.
2. What’s the big deal?
This is the first new payments system in the U.S. to be developed in over 40 years.
TCH President and CEO Jim Aramanda said in a prepared statement that “RTP will provide financial institutions with the ability to better serve businesses and consumers, and to move payments faster in today’s real-time economy.”
And the benefits of moving money in real time are more than just convenience, say proponents.
“This new payments system will allow everyday financial tasks such as paying bills, issuing invoices, making payroll, or settling insurance claims to be easier, faster, safer, and more satisfying,” said Aramanda. “The ability to manage cash flow down to the second will free up working capital for businesses and make life less stressful for consumers on tight budgets.”
3. Why now?
Chris Ward, executive vice-president and Head of Product Management for PNC Treasury Management, responding to questions by email, says that RTP meets the needs of the digital economy. “As consumers and corporates seek real-time experiences, banks are providing solutions that deliver a consumer-like, integrated experience,” says Ward.
4. Will other banks jump on board?
Rollout and adoption will take time. However, it’s likely that once consumers and businesses get a taste of real-time payments, they’ll demand that their financial institution offer them.
Open to all U.S. depository institutions and not just TCS member banks, the goal is ubiquity of RTP by 2020. But since real-time is not mandatory, financial institutions, particularly community banks, will wait until the networks have critical mass, creating a “chicken and egg” situation, writes Gareth Lodge, senior analyst, in the just-released Celent report, Top Trends in Corporate Payments, 2017 Edition
Indeed, even though TCH and Zelle Network (formerly clearXchange) combined account for more than 50% of DDA accounts, says Lodge, those 40 or 50 financial institutions are only a fraction of the more than 10,000 connected to the ACH networks.
Erika Baumann, senior wholesale banking analyst for Aite Group, says that the 2020 date is somewhat aggressive given the complexity of the U.S. payments systems and the sheer number of financial institutions in it.
Baumann predicts that every bank that wants to use RTP will be able to, but that not every bank will determine that it wants to.
5. Are there different levels of participation?
Yes. Financial institutions can select whether they participate as receive only, send, or allow request for payment, among other levels.
6. What’s the difference between RTP and same-day ACH?
NACHA is behind same-day ACH, which is half-way through a three-year rollout. Same-day ACH is faster than previous ACH payments, but it’s still not real time. RTP has a speed of ten seconds or less, and, unlike same-day ACH, isn’t beholden to the Federal Reserve’s 6:30 p.m. Eastern cutoff.
7. Isn’t RTP just for person-to-person payments?
P2P payments will likely get a boost from RTP, and in fact many financial institutions view RTP as solely a P2P solution, but it’s corporates that will see the value in payroll, invoice payments, or funds confirmations that will drive adoption. Governments can also use RTP.
Explains PNC’s Ward, “The network’s capabilities go beyond just the transfer of funds. RTP’s messaging capabilities allow for a two-way dialogue between payer and receiver. The open access to data and easy integration offered by APIs, combined with round-the-clock real-time payments, redefines the digital experience and offers a platform for introducing fresh innovating solutions for both corporate and consumer customers.”
8. How does real-time payments deliver value to businesses?
There are several ways, notes Ward. RTPs are secure and irrevocable, providing certainty for sender and receiver. Along with instant delivery and availability of funds, RTPs provide immediate confirmation of payment receipt.
Ward expects PNC’s business customers to integrate RTPs and associated messaging in their processes. “Using this new tool, they can accelerate and streamline the delivery of the information associated with the payment,” says Ward, adding, in today’s digital economy, the information is almost more important than the payment. “The network’s Request for Payment capability puts the control of the payments in the hand of the payer, eliminating surprise debits.”
9. Is this a new payments rail?
It is. How the new rail will integrate with legacy infrastructure is not yet clear. For one thing, sending financial institutions will need to fund a settlement account at the Federal Reserve Banks to provide liquidity for customer payments, as spelled out in TCH’s Real-Time Payments Participation Rules. According to Tim Mills, vice-president of TCS, institutions that are just receiving real-time payments would not have to prefund accounts.
10. How does RTP impact exception processing?
Since RTP is accepted or rejected at the time the payment is submitted, exception processing should be eliminated.
11. Is this a big bank solution? Is RTP right for community banks?
It’s not that RTP isn’t appropriate for community banks, explains Dan Fisher, president and CEO of The Copper River Group, but that community banks typically don’t have the integrated payments systems that will be able to take advantage of RTP. “If you make a deposit at the branch and it isn’t reflected in your mobile app, that’s terribly confusing for consumers,” says Fisher. “The most pressing issue for community banks isn’t RTP, but fully integrating their payments systems.”
Aite Group’s Baumann agrees that banks need to create an integrated payments hub before trying to take advantage of RTP.