Faster payments are the future of payments, full stop. The world operates at light-speed these days, and convenience and efficiency always win the day. Real-time payments (RTP) have seen steady growth since the technology was first introduced, and while RTP has seemed poised to explode for several years, it has not yet seen widespread adoption. Is the promise of faster payments finally coming to fruition?
To learn more about how collaboration across all industry stakeholders will be key to the success and implementation of real-time payments, PaymentsJournal sat down with Will Graylin, Founder and CEO of OV Loop; Peter Davey, Senior Vice President and Head of Product Innovation at The Clearing House (TCH); and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.
Real-time payments for a real-time economy
According to a recent PaymentsJournal article, people have very high expectations for real-time payments:
- 80% of merchants, retail banks, and billing organizations favor real-time payments and open banking.
- 84% of regional merchants, retail banks, and billing organizations anticipate customer service improvements from real-time payments.
- 92% of merchants and 82% of billing organizations with revenues of at least $5 billion expect to see customer service improvements as a result of real-time payments.
“The stats really highlight that we’ve already moved into a real-time economy,” said Davey. “The reality around all of this is that folks desire real time-attributes… to know where everything stands at any one point in time.”
When real-time systems are built on top of legacy rails like Zelle, users benefit from a response mechanism that gives people transaction status. According to Davey, many people call their banks simply to ensure that somebody received their payments. RTP takes the pressure off of call centers and alleviates “pay and pray,” where users cross their fingers and hope their money went to the right place. “The assured delivery and response capabilities that have been built into a lot of the real-time payment networks really do allow for you to do customer self-service,” Davey continued. “This creates a much more delightful end-user experience.”
Open banking has already started to drive faster payments in Europe, according to Sloane. “As the use cases were defined, adoption followed in a really big way,” he said, adding that between PayIt, TrueLayer, and a new solution called Kevin., “there’s a lot of innovation going on.” Foundationally, payment rails are required to bring RTP to life, and TCH has provided the first rail capabilities of this kind in the U.S. Simultaneously, OV Loop can run the user interface and develop APIs to connect payments to people and businesses all over. “The possibilities are tremendous for RTP to take off,” said Graylin.
Why the U.S. is behind the curve…
Considering the success real-time payments have found in Europe, it begs the question, Why has the U.S. – an innovator in so many other spaces – lagged in incorporating RTP? One reason is simply that change takes time. “The reality of any situation when you have new technology coming into play,” explained Davey, “is that it takes a while for people to actually build out their capabilities to leverage the new technology.” The majority of the five to six thousand financial institutions in the U.S. are over a hundred years old, which means a lot of legacy investments have been made, and many of those FIs are also reliant on their core providers to provide new technological capabilities.
Another reason is that Europe operates under PSD2 mandates, which codify open-banking regulations in the EU, whereas U.S. RTP solutions are commercially driven. “Financial institutions, merchants, the networks—everybody has some solution that has some commercial implications to them relative to where they make revenue and where they have to expend costs,” Sloane pointed out.
However, bill pay represents a great opportunity for the U.S. to apply real-time payments in a way that is beneficial to everyone. “Despite the lack of a mandate, it will make commercial sense,” Sloane explained. “How you then expand that into more traditional user payments becomes a bit of a challenge.”
…and how the U.S. can catch up
That is where The Clearing House and OV Loop come into play. The TCH real-time payments network is just over four years old, and Davey summarized: “We’ve got over 62% of the entire U.S. deposit base now eligible to receive an RTP transaction… we’ve got at least eight of the top ten banks that are originating payments every single day on the network… and we’re growing by at least 10% per month in terms of volume.”
Meanwhile, OV Loop focuses on creating the best possible user experience by creating applications that enhance the bill pay experience with interactive bills and offers that merchants/billers can easily send out and field questions as they arise. “That kind of messaging could be sent across many different kinds of channels,” said Graylin, perhaps by enabling a “super wallet” that sends tokenized payments through RTP rails, or even by email or text.
“It’s really about creating an omnipresent experience,” Davey clarified. “I don’t want to necessarily be strangleheld by a traditional online banking experience—I want to be able to pay bills and interact with my finances wherever I want to be,” whether from the car, browser, or mobile phone. Other fintechs, such as Jack Henry, Fiserv, and FIS, are continuing to drive the market forward. “The ones who will succeed in this industry are the ones who realize that open [banking] is actually a benefit for them,” added Davey. “I’d say 2022 will be the year of real-time payments in the U.S.”
The future of RTP innovation
The U.S. has a complex ecosystem of billers, payers, and FIs in the middle, all of whom will need to experience tangible benefits in order to fully embrace real-time payments. Organizations like The Clearing House are actively working to make real-time payments look attractive. TCH is currently driving progress with Akoya, a data access network co-owned by TCH, through which they can securely access and share financial data. TCH will also offer document services, allowing digital documents to be attached to any transaction, which will help with billing, invoicing, and data remittance.
“Gone are the days of having to format things into an 80-byte file and then having them decoded by your financial institution,” said Davey. “Now, I can actually directly exchange a PDF or XML file with my partner as part of the payment record, therefore alleviating the financial institution from having to do all of that complexity and work.”
Innovators like OV Loop are more focused on the “above-the-glass” experience that can then be paired with “below-the-glass” APIs and payment rails from companies like TCH Akoya. “It’s really about building that front-end experience for consumers on one side, but also the back-end experience that makes it easier for billers to create these interactive offers,” said Graylin.
Davey paraphrased his TCH colleague Steve Ledford: “What we do at The Clearing House – we’re all plumbers, which means that we’re the ones laying all the pipes so that things can move from place to place.” Sloane added that by that same metaphor, OV Loop manufactures the faucets, sinks, and dishwashers, aka the user interface.
Above all, it is vital that everybody can leverage the infrastructure of real-time payments. The disparate payments ecosystem can benefit across the board from a unified solution to systemic issues. “Hopefully [we will] be able to drive standardization in a much faster way than having to do this one-off over and over again across multiple financial institutions,” concluded Davey. “The more that we can do as a network that enables all parties to succeed, the better off we’re going to be.”
This upcoming year, we at PaymentsJournal are excited to see the promises of real time payments come to fruition. Hopefully, we will look back at 2022 as a watershed year for the industry with respect to adoption, innovation and collaboration. Happy New Year!