Everything in the technology world seems to be getting faster, and the payments industry isn’t immune to the trend.
In recent months, the desire for faster or even real-time payments has been a hot topic in the industry. Last fall, new rules expanded same-day Automated Clearing House (ACH) capabilities, which enable electronic payments to be debited directly from a customer’s account. In addition, at the end of 2018, Walmart and Target asked the Federal Reserve to implement a solution to help merchants get paid faster.
This corner of the payments ecosystem is rapidly evolving as innovations in real-time payments enable businesses to leverage these types of payments to their advantage.
The origination of real-time payments
Real-time payments, also known as faster payments, have been described by the U.S. Faster Payments Council as payments in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time.
Examples of these solutions in the U.S. are same-day ACH, where funds are made available to the recipients by 5 p.m. local time if disbursements were sent by the daily cutoff times, and real-time payments, which allows businesses to process each funds disbursement to post in real-time or near-real time to the recipient’s account.
Real-time payments also allow the recipient of the funds to access their money 24/7/365. With advancements in payment technologies and channels such as mobile that are always connected, consumer and business requirements have changed, and different solutions from traditional and upstart players are emerging.
Adoption in the U.S. and abroad
Due to more manageable and capable systems, the international markets have been rolling out solutions within their local markets in the past decade.
In 2008, for example, Pay.UK, a retail payments authority in the U.K., went to market with its faster payments platform where customers can schedule single, recurring and forward-dated payments. Corporate entities can also securely send payment instructions any time of the day for processing and immediate funding to beneficiaries.
In 2014, Singapore introduced 24/7 bank-to-bank transfer transactions through its Fast and Secure Transfer (FAST) solution, and Vocalink, a Mastercard real-time payments solution, has gained a foothold in the European Union.
In 2018, Australia introduced its New Payment Platform (NPP). This service is similar to Zelle, a payment method introduced in the U.S. in 2017 that allows bank customers to move their money electronically with email addresses or mobile phone numbers.
It is apparent that the U.S. market needs to have a faster payments solution to compete in the global market and to meet the expectations of consumers and businesses.
Some of this work is already underway. A Federal Reserve task force started in 2015 recommended more collaboration between financial institutions, which is reflected in the Zelle product. Additionally, NACHA, an association of financial institutions, completed its three-phase rollout supporting credit, debit and rule updates to support same-day payments for payees.
The Clearing House, another banking association, also has a real-time payments (RTP) system that can manage bank-to-bank payments. Its goal is to ensure that every financial institution in the U.S. has an easy way to access the RTP network by 2020.
At Bank of America Merchant Services, we’re enabling businesses to disburse funds to their customers for rebates, and payments for insurance claims directly to their debit cards in near-real time. We have seen reports of increased adoption of Zelle for person-to-person (P2P) and same-day ACH payments. Both products are starting to play a more prominent role in the business-to-consumer (B2C), government-to-consumer (G2C), and business-to-business (B2B) spaces.
Impacts on the payments ecosystem
Real-time payments solve the longstanding slower processing times of the past and speeds up innovation. Initially, however, the impact of implementing faster payment solutions will require significant investments and time, as organizations transition from past practices and systems. It will be a similar impact for merchants and acquirers who use legacy POS equipment and system technologies. After making upgrades, however, organizations can support new innovations (API integration, for example) and more quickly implement solutions such as Agile methodologies for their customers.
For businesses considering real-time payments, hold conversations with your payments provider as industry trends, proprietary research and feedback regarding this evolving payment form continue to develop.