Real-time payments are becoming an increasingly important part of the U.S. payments landscape as large and regional banks connect to The Clearing House’s RTP network. For financial institutions that have yet to adopt faster payments, the question is how quickly their business customers will begin to expect real-time capabilities and whether delaying adoption could put those relationships at risk.
While many businesses remain satisfied with existing payment methods, interest in real-time payments is growing. Faster settlement, richer transaction information, and the potential for greater operational efficiency could make the technology especially valuable for corporate customers. As adoption expands, community banks and credit unions will need to evaluate whether real-time payments are becoming a competitive necessity for the businesses they serve.
The Clearing House (TCH) launched their real-time payments platform, RTP, a year and a half ago. The largest banks are offering RTP and other faster payment solutions already. Large regional banks are on board or are close to launching as well. Does that mean that the financial institutions that aren’t already on board or a couple of years from launching too late and in danger of losing their corporate customers who may find value in real time? The answer likely will be dependent on the type of businesses that a specific bank serves and the importance that faster payments with more transaction detail could have to their operations. And of course, price. If real-time and faster payments are price competitive, then adoption will be swift.
A recent study conducted by Citizen’s Bank interviewed 150 businesses to ask about how important real-time payments are or will soon become to their operations. A summary of the results were included in an American Banker article. Some excerpts from that article:
More than 41% of the roughly 150 companies surveyed by Citizens Financial Group are in talks with their banks about the real-time payments network, or they are having discussion about doing so. The Providence, R.I., regional bank conducted its survey in March and April.
While nearly 90% of the businesses polled said they were content with the current payments system, Michael Cummins, who heads treasury solutions at Citizens, said banks shouldn’t rely on that finding as a rationale to delay converting to real-time payments. Those that wait too long run a real risk of losing customers, he said.
I’m a firm believer that real-time payments should be adopted by all banks because it is market leading. It’s the first new payment rail in over 40 years. It’s going to help customers be more efficient. … At the end of the day, as a banker that’s our job, to help our clients.
The infrastructure is there. If you look at Citizens, we have the capability to receive and send real-time payments. We’re up and running. The Clearing House’s rails are running. The product has been built. There are a number of banks on the rails.
Depending on how quickly companies and consumers adopt real-time payments, it could have an impact on a smaller community bank that has not bought into the technology, either through some kind of consortium or building the technology. I think it would impact their chances of being competitive. I don’t think conversion is cost prohibitive.
I imagine credit unions are having the same kinds of discussions as community banks.
The pace of real-time payments adoption will depend heavily on customer needs, use cases, and pricing. Financial institutions serving businesses that can benefit significantly from immediate payments and enhanced transaction data may face greater pressure to offer the capability sooner rather than later.
With the RTP infrastructure already available, smaller financial institutions must determine how quickly customer expectations are changing and whether delaying implementation could weaken their competitive position. As more businesses incorporate faster payments into their operations, access to real-time payment capabilities could become an increasingly important factor in choosing and maintaining banking relationships.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
