Real-time payments present a significant opportunity for financial institutions. Consumers have made it clear that they want and expect the ability to send and receive funds instantly or nearly so. However, the space is highly competitive. As happens in a market-driven economy, a myriad of non-bank services have popped up hoping to fill demand. Not to be outdone, many financial institutions have also responded to this demand by adding a real-time payment service to their product offerings, and are navigating decisions on which options will best meet the current and future needs of their clients.
As to whether a financial institution that has not already taken the leap should add real-time payment capabilities to its product array — the answer is an unqualified yes. True enough, consumers and small businesses can access real-time payment services outside their financial institutions, but letting customers go elsewhere for access to a service they expect from their financial institution can put the overall client relationship at risk. The more frequently customers access services from outside their bank or credit union, the more likely they are to perceive their financial institution as inadequate for their needs, creating easy pickings for competitors with more robust offerings. Indeed, the time is fast approaching when real-time payment services will not so much provide a competitive advantage as not offering them will present a competitive disadvantage.
Where to start?
Once a financial institution makes the not-trivial decision to offer real-time payments in some shape or form, on its heels comes the equally not-trivial decision as to where and how to begin. Fortunately, Zelle® has arisen as an easy entry point.
Zelle largely owes its “ideal starting point” status to two factors. The first is that several financial institution technology providers offer direct connectivity to Zelle, facilitating its integration into existing financial institution infrastructures.
Second is its immense popularity and reach. With its emergence in 2017, Zelle pushed easy-to-use, real-time, person-to-person (P2P) payments into the mainstream in the United States. Owned by Early Warning, Zelle was a hit, outpacing Venmo and other P2P providers in signups and transactions within a few years. Today, nearly 1,900 financial institutions — from large banks to community banks and credit unions — offer Zelle in their apps. As a result, consumers, along with businesses of all sizes, have moved nearly 1.5 trillion dollars through more than five billion Zelle payments.
However, while Zelle satisfies the need of paying friends, family and small businesses, a time may come when a financial institution time wishes to expand their real-time capabilities and add The Clearing House’s RTP® network, the Federal Reserve’s soon-to-be-available FedNowSM Service, or both.
Are there differences?
At first blush, Zelle, the RTP network, and FedNow may look quite similar. After all, they attain the same end result in terms of funds moved within minutes. Yet there are crucial differences.
Zelle is marketed directly to consumers and small to medium sized businesses, and has an app to facilitate access. In contrast, the RTP network and FedNow are strictly payment networks, or “rails” through which transactions can travel. There is no user interface for either the RTP network or FedNow.
Each service also has differing use cases and fee structures, and transfer limits vary. Zelle has transfer limits set by individual banks ranging from $500 to $2,000 per day and $5,500 to $20,000 per month. RTP network has a one-million-dollar transaction cap, and FedNow has a half-million-dollar transaction cap.
The higher limits for the RTP network and FedNow make sense considering their intended use. The higher caps mean these networks not only support consumer funds transfers, they are also suited for commercial and corporate use. The RTP network has seen a variety of use cases including merchant funding, insurance claim payments, business and supplier payments, payroll, investment account distributions, and more.
Which real-time service is the right fit?
Although Zelle, RTP network, and FedNow all facilitate real-time payments, it is important to note they are not interoperable, meaning payments initiated using one cannot be received using another, and vice versa. Sending or receiving real-time payments requires that both the sending and receiving financial institutions be connected to the same real-time network. This means the best way to avoid gaps and restricted payment deliverability — and the surest way to serve and retain all customers — is to offer all three real-time payment services.
By connecting to all three networks — Zelle, the RTP network, and FedNow—financial institutions can unlock more use cases and better serve a broader set of merchants, billers, consumers, and businesses seeking to send and receive funds in real time.
Matt Wilcox is President of Digital Payments and Data Aggregation at Fiserv