The U.S. has worked hard to make advances in the real-time payments (RTPs) marketplace, with access to Zelle and TCH, as well as FedNow arriving in the near future. However, only a small number of financial institutions (FIs) are currently enrolled in a RTPs system.
In a recent Banking Exchange hosted webinar, Real-Time Payments in the U.S. Market: Speeding Up or Slowing Down, experts discussed RTPs in the U.S. and how they can catch up to other wealthy countries globally.
What are RTPs
According to Gareth Lodge at Celent, an RTP is “an inter-bank, account-to-account payment posted and confirmed to the originating bank within one minute.” It operates on an open loop system, with the funds clearing and settling in the customer’s bank account.
Processors like Cash App, Venmo, and PayPal are not examples of RTPs because they operate on closed loop systems. They are often more limited in reaching to the end account, though lesser now that new, technology-driven trends have come to market. People often confuse these apps for real-time, but they actually settle to the demand deposit account (DDA) through the ACH rails. It often appears to the consumer that the funds are settled immediately, but the concrete dollars are not moved right away.
RTPs break the barriers of systems like B2B and P2P because payments can be sent from anyone to anyone, regardless of the FI where the account resides. When processing any payments, FIs should consider the backend money movement, customer service, and liability.
RTPs in the U.S.
While closed loop services like push-to-card and ACH Same Day offer many convenient services, RTPs have expanded capabilities that are not limited to particular rails or use cases. Out of the largest 20 countries in the world, the U.S. is behind in the market in terms of RTPs and is the only country without widespread adoption of it.
Although many U.S. banks have started on their RTP journey, a large number still risk falling behind. Those who have already adopted RTPs into their banking systems have seen a significant increase in its usage due, in part, to the ongoing COVID-19 pandemic.
FIs and RTP success
Lodge also offered five tips for banks and credit unions (CUs) to ensure RTP success:
- Don’t wait! When FIs come across products and solutions that seem promising for their companies, it might be best to take what is being offered. For example, waiting for FedNow instead of using TCH might not be the better choice if clients can benefit from those use cases now.
- Manage it as a product RTPs are different from other payments and will likely be foundational to businesses for the foreseeable future. It is not ACH; it is a product, and the focus should be on use cases. Good funds, 24/7 availability, and single message are components of RTPs that add value for clients.
- Think holistically If a bank does not offer RTPs, that business might be diverted to another FI. Many business clients go beyond the money movement, and for them, it is not just about making faster payments. It is also about the data that travels with the payment. ISO 20022 has created a realm of possibilities for FIs to take advantage of.
- New normals RTPs happen 24/7, so systems need to operate in the same fashion. Also, RTPs do not increase fraudulent activity, but they do expose the faults in the system more quickly.
- New business models real-time can help create new product innovations. The most successful banks globally are those who are transparent with their customers, breaking down the meaning of RTPs and then figuring out the best use cases for them.
Rather than focusing on slight reduction in the sales volume and revenue or market share of existing products that could come as a result of RTP implementation, FIs should allow their payments platforms to grow in multiple directions. Commercial enterprises and consumers are expected to start conducting transactions more frequently using RTP rails. This growth in volume makes FIs more attractive to commercial entities looking to leverage RTPs for a plethora of use cases including gig economy or contract employees and real-time traditional payroll.
While the U.S. was late to the starting line, there is still a chance for them to take the lead. Fintech partnerships can provide FIs with the tools needed to develop and move the process along faster. The interest is undoubtedly out there, and some lucky institutions are going to be amongst the first to get it right.