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Real-time and faster payments are slowly becoming a reality in the U.S., with The Clearing House’s RTP network up and running and the launch of the Federal Reserve’s FedNow imminent. But there is still much work to do. What use cases exist for faster and real-time payments, and when will we reach interoperability and ubiquity?
To learn more about why collaboration across all industry stakeholders will be key to the adoption and success of faster payments, PaymentsJournal sat down with Will Graylin, Founder & CEO of OV Loop, Reed Luhtanen, Executive Director of the U.S. Faster Payments Council, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.
Faster payments are becoming a reality, but there’s room for growth
There have been significant strides in recent years when it comes to launching faster payments in the United States. Most significantly, The Clearing House’s RTP network, which went live in 2017, was the first new payments system launched in the United States in 40 years. Meanwhile, the Federal Reserve’s upcoming RTP network, FedNow, is anticipated to launch in 2023.
Even so, the United States has historically lagged behind other countries when it comes to launching interoperable and ubiquitous faster and real-time payment rails. This is not due to a lack of interest by businesses and consumers; The European Union has seen rapid uptake since launching its own RTP infrastructure. “There’s an appetite for this. There’s no doubt about it. The U.S. infrastructure just doesn’t quite have all of the solution sets yet,” explained Sloane.
Despite these gaps, payments industry stakeholders are aware of the importance of faster payments system ubiquity and interoperability. In fact, 71% of survey respondents from the Faster Payments Council’s 2020 Faster Payments Barometer survey view interoperability across faster payment systems as very important:
Part of what is missing are the Application Programming Interfaces (APIs) necessary to achieve ubiquity and interoperability. “As we replace the older ways of money transfer, including older rails such as ACH, we need to bring better kinds of applications to more brands and more ways to utilize the faster payment rails for everybody to appreciate the experience,” said Graylin.
Ultimately, the goal of real-time payments networks is for them to have ubiquitous reach. “At the end of the day, what we’re looking for in terms of interoperability is a strategy to achieve the objective of ubiquitous reach for these payment rails so that you’ve increased the utility for everyone who’s using them,” Graylin added.
Transparency is key to faster payments
Faster payments and real-time payment rails are of interest to banks, billers, and merchants alike. Each of these key players has their own priorities driving this interest, but transparency is a common theme.
Banks are interested in implementing faster payments for several reasons. First, it enables banks to compete with nimble fintechs and remain relevant in the eyes of account holders. It also allows them to offer increased transparency. “There’s an increasing expectation that [if] we go in and look at our online banking, it should reflect the reality of our account. When you’re transacting instantly, that is the case,” said Luhtanen. Finally, faster payments can help banks achieve greater financial inclusion by opening banking relationships to unbanked and underbanked individuals.
Billers’ top priority has long been to make bill payment an easy, simple, and hands-off process for customers. “Both the biller and the customer want to avoid exception cases. They don’t want shutoffs. [Billers] want the customer to be able to pay [bills] quickly and easily, and the customer also wants that,” added Luhtanen.
Like banks, billers and their customers also crave transparency. For example, most consumers have had the experience of making a bill payment but not knowing whether that payment went through. Next generation messaging abilities embedded into instant payments can provide the reassurance that the biller received that payment.
Meanwhile, merchants have long prioritized offering the payment options customers want to use. Faster and real-time payments are no exception. “As customers begin to demand different payments, merchants get on board with that. I’d also say merchants have an interest in security, costs, and certainty,” said Luhtanen. For merchant customers, instant payments could mean receiving a merchandise refund in real time. This can have a big impact on customers who need that refund to buy the item they originally intended to purchase.
Sophisticated chat support drives transparency
Making or receiving a payment is typically the last step of a transaction. “For merchants and billers, and banks are certainly one of those billers as well, it’s important to understand the experience by which they send their bill across multiple channels. And the payment is the last step,” said Graylin.
Before someone decides to pay, they may have questions about components of the process, such as why a late fee or roaming charge is appearing on their bill. “Those are friction points, so providing a convenient way for [billers] to address those questions, particularly leveraging chat support… is an important element to the conversion process,” said Graylin.
The need for transparency around faster payments is something that OV Loop is addressing in its OV Concierge Chat solution, which enables billers’ customer service representatives to become concierge agents to better service their customers.
Making faster payments ubiquity come to fruition
In 2017, the Fed’s Faster Payments Task Force called upon industry stakeholders to realize the vision for a payment system in the United States that is faster, ubiquitous, broadly inclusive, safe, secure and efficient by 2020. Coming to the end of 2021, that vision has yet to be realized. “It’s always going to feel like we’re coming up short, because we’re going to be thinking about what’s next,” acknowledged Luhtanen.
But that does not minimize the noteworthy progress that has occurred. For example, Same Day ACH is significantly faster and more ubiquitous than it was in years past. “In the background, we have achieved a level of ubiquity that we probably weren’t thinking about, but that is extremely valuable to the users of those networks. But now that those are in place, we rightly want to work on the next improvements,” said Luhtanen.
Because of the sheer volume of work that needs to get done, pinning down an exact date for payments ubiquity is hard to accomplish. “The date can’t be nailed down because there’s going to be constant improvements, and demand will drive what those improvements are and what’s necessary,” said Sloane. “Since every new use case has its own set of fraud and issues, it takes time to build out a faster payments rail to do everything,” he added.
Underscoring the value of real-time and faster payments to those that will benefit from the rails will be crucial to propel further progress. “The key is going to be continuing to get the word out to would-be users, whether they’re financial institutions, corporates, [or] consumers, about why this is important to them, what it does for them, how it provides value to them, and why it’s worth their time and resources to invest in this. And I think that’s going to come because enhancing payments enhances something that everybody, whether it’s a consumer or business, does every day,” said Luhtanen.
Innovative startups can drive forward faster payments
Large corporations and banks do not need to be the only organizations enabling faster payments. Startups in the payments space can also step in as innovators and fill in the gaps for what’s needed on top of real-time payment rails.
That is the role OV Loop has taken on. “We’re focused on the next generation of commerce experiences… for merchants and billers as well as commerce experiences for members in their loop. From that perspective, being able to provide them with a set of tools to leverage an easier and more interactive billing [and] invoicing solution in terms of next generation messaging is a really important aspect of where we’re moving,” said Graylin.
A hurdle that startups can face when getting involved in the payments space centers around high-stakes compliance and security considerations. “If I was in the startup mode, partnering with an established technology company to marry the best of your agility and innovative nature with the best of their expertise and scale could potentially be a successful recipe,” said Luhtanen.
Everyone is looking forward to the proliferation of real time payments in the United States. Organizations like the Faster Payments Council and startups like OV Loop are partnering across the industry to bring the vision to reality. Onward and upward, as they say!