Early adopter: Clearing House real-time payments lands first small bank

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Avidia Bank in Hudson, Mass., is set to become the first small bank to join The Clearing House's real-time payment system, even as many other community banks are continuing to pressure the Federal Reserve to offer its own faster payments service.

The $1.6 billion-asset bank is adding the real-time payment network to its payment options for both commercial clients and the fintechs it serves, said Bob Conery, chief operating officer at Avidia. The bank already offers a faster payments service, a push-to-card system that allows customers to send money to people or small businesses through their cards. It's part of the reason the bank is keen to jump on board with the Clearing House's network.

“We can see the demand for real-time payments because we're doing push-to-card,” Conery said. “The Clearing House opportunity provides the same functionality but with less friction than what we have today supporting RTP.”

The move comes at a key time during the debate over real-time payments. Many small banks are calling on the Fed to create its own real-time payment service to compete with the Clearing House, arguing that it's a monopoly controlled by the biggest banks. The Clearing House contends that's not the case, but last month suggested it may change its pricing model for smaller institutions if it faces Fed competition, an action some community banks saw as a thinly-veiled threat.

Real-time payment adoption, meanwhile, is becoming more vital for banks of all sizes — as well as their customers, particularly with the growth of the gig economy.

“Think about landscapers that need to bill people,” said Krista Tedder, director of payments at Javelin Strategy & Research. "They often get paid in check or cash, but now they can make a real-time payment request as part of an invoicing ability.”

Avidia Bank says The Clearing House's system is more efficient than its current real-time push-to-card system. For those transfers, a bank needs the receiver’s debit card number and some banks might have limits on how many times they allow a push-to-card transfer. In comparison, The Clearing House’s network only requires a checking and routing number.

Banks can connect to The Clearing House’s RTP network directly or through a core provider or other third party service provider. Some banks, however, may opt to just receive payments instead of sending and receiving payments all at once, which requires a heftier integration.

Avidia plans to have a pilot in the last quarter of 2019 and to be in full production in the first quarter of 2020. Today, there are 15 banks live on The Clearing House’s RTP network, including JPMorgan Chase, Citibank, Wells Fargo, U.S. Bank, and PNC Bank.

The Clearing House has other community banks and credit unions in its pipeline that have not announced, said Steve Ledford, senior vice president of product strategy and development at The Clearing House.

Avidia added it is open to be a funding bank to those institutions that are hesitant to send payments in addition to receiving them. This would provide the bank more fee and float income as well as provide its fintech partners with options for more than one banking relationship.

“You can be a receiving bank but you might choose to have a funding agent because you don’t want to manage the liquidity yourself,” Conery said. “Maybe you don’t want to measure the Treasury requirements. A lot of smaller banks don’t want to be stuck with the day-to-day monitoring.”

The bank is also open to using a real-time request for payment, a feature that is not yet used by any institution on The Clearing House's network. (The Clearing House plans to run pilots of this feature to encourage adoption later this year).

Banks may have to do more work to teach consumers how real-time payments can be relevant to their day-to-day life, however. Companies like Paypal and Venmo have made customers feel like they already have real-time payments, while Venmo allows P2P payments to be social, Tedder said.

Consumers understand bill payment requests, but not the processes behind them, so they would need an explanation of why getting rid of ACH would benefit them, said John Hickman, managing principal at consulting firm Capco.

“On the consumer side, customers would have to figure out what RTP actually means,” Hickman said.

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Real-time payments Payment fees P-to-P payments Community banking ACH The Clearing House Association