As we have pointed out in various member reports and viewpoints on the subject of faster payments, one of the obvious concerns for those institutions and corporates that are using (or contemplating the use of) real-time payments tools is the risk of irrevocability.
In effect, this risk already exists. For example, Fedwire is a RTGS system, but the operating windows are more or less business hours. The risk level difference between legacy RTGS and the new RTP rail is the ‘always on’ availability, which then strongly suggests implementing in-kind fraud controls.
This referenced posting in American Banker discusses TCH’s intent to increase single transaction limits for RTP to $100,000 from the current $25,000, to take effect February 1, 2020:
‘The change in maximum amount of a single real-time payment will quadruple the size of the existing $25,000 limit in a bid to make the RTP network more attractive to both financial institutions and users. It will also create an additional point of differentiation between the bank-owned Clearing House RTP network and other rival private and public faster payment networks. For example, the Automated Clearing House, which processes the bulk of all electronic transactions by value according to the Federal Reserve, offers a Same Day ACH faster payment service that has a $25,000 single transaction limit.’
In terms of the American Banker article, I have a couple of points. First, RTP is presently the only constant access real-time payments system in the U.S. (with purpose-built B2B features). Therefore ‘rival networks’ are faster than legacy versions, but not always real-time clearing and settlement.
Second, attractiveness is a relative term, so development and implementation effort varies by user. Certainly the new transaction limit will be expected to naturally increase the overall value of payments running over RTP rails, but the real test will be whether it increases volume in and of itself.
Keep in mind that Same Day ACH transaction limits are also increasing to $100,000 as of March 20, 2020, so this is a short window for any advantage and is more of a level-setting tactical move. Nevertheless, it is an important development that shines further light on the need for better fraud strategies and systems.
‘One major challenge posed by the increased maximum payment limit is the perception of an increase in the level of risk to the operators on the network, as real-time payments leave little margin for error in mistakes and require vigilant anti-fraud controls. This is because one of the tenets of a real-time transaction is irrevocability. In other words, a mistaken or fraudulent transaction that is processed in real time typically cannot be clawed back.’
Although banks in the RTP network are required to accept payments up to the set limits, payments initiators still have the option to keep lower limits in place until they feel ready to accept any perceived increase in risk.
RTP was launched in late 2017, which in the current accelerated ‘now’ times seems like ages ago. Adoption through most of 2019 was rather tepid, but there are signs of an awakening, with 21 top banks now in the network and smaller institutions showing interest. We’ll keep you posted.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
