An article in Finextra today nicely summarizes the current state of real-time payments in the U.S. In case your attention has been focused elsewhere, here are the quick highlights:
- The Clearing House continues to build out its RTP platform with banks (large banks, mostly) integrating real-time services into their payment offerings directly or through technology providers.
- Early Warning continues to grow its Zelle person-to-person (P2P) solution at break-neck speed and is now focused on developing business-to-consumer (B2C) disbursement solutions.
- Mastercard’s Send and Visa’s Direct near real-time products are growing particularly in B2C channels, with the advantage of being able to reach (theoretically) anyone with a network branded card.
- Same Day ACH, although not real time, does offer settlement within hours and is seeing strong growth as well.
- The Fed continues to mull over whether or not it needs to join the fray.
The Finextra piece considers what the Fed’s involvement might mean:
Should the Fed provide a RTP scheme?
Obviously, Fed’s role as a central bank makes it uniquely positioned to shift the payment landscape in the U.S.
As the only provider of central bank settlement services, it can smooth the way for existing rails to improve their speed and availability and to enable the creation of competing rails or bilateral arrangements where economical. This is why the Fed’s liquidity management tool proposal seems to find deep support from the stakeholders.
Since cross border RTP will require coordinated central bank settlement, the Fed is again in the unique position to drive that dialogue. Equally – since some level of regulatory harmonisation may be required, the Fed is again in a better position to drive that than a private entity
The real risk of a Fed centralised real-time payments architecture (in view of the red corner and my own view) is that it won’t add anything new to the current competitive landscape with bank utilities, and private companies providing both fast and real-time rails. TCH, Paypal, Venmo, Zelle, Visa Direct and Mastercard Send and others already serve all push use cases: P2P, Disbursements, Bill Pay and Cross border. And they are all formidable competitors. According to Steve Ledford who leads the RTP initiative for TCH, “We see MasterCard and Visa as very direct and formidable competitors already. We compete head to head for disbursement and P2P fulfilment volume with both card networks. We also consider same-day ACH to be competitive with RTP across a range of use cases.” So, it seems there is already a developing and growing ecosystem centred around three types of rails – RTP, Same Day ACH and Cards.
I agree with most of that statement: the addition of the Fed is not guaranteed to offer anything unique that the private sector hasn’t already offered. If the Fed does offer a competing service, it will take years to build which will delay real-time product implementations primarily with smaller financial institutions who are largely already behind in their real-time product development in comparison to their large bank brethren. I don’t agree, however, that the Fed’s involvement as a payments operator is needed to drive cross border transactions. They don’t have to operate the payment platform to “harmonize” the regulatory environment for real-time cross border payments. Let’s not forget that Mastercard and Visa are already accomplishing this through.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group