How real-time tech casts a lifeline to banks' online bill pay

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One of the biggest untapped areas of payment innovation is in consumer bill payment, which makes up 30% of U.S. consumer spending, with banks currently playing a shrinking role in the $4 trillion segment.

Most households bypass banks' online bill-payment platforms, instead paying billers directly through a mix of ACH, cards, checks and cash — including P2P and real-time payment platforms like Zelle for rent — with rapid growth in mobile payment processes devised by billers.

The result is a chaotic ecosystem where consumers have gravitated toward last-minute mobile bill payments, which are faster and easier than banks’ arguably outdated online bill payment services, according to research from Mercator Advisory Group.

Payrailz, launched in 2016 by a group of bank technology veterans, is one of various payments innovators working to tame consumer bill payments through banks. Recently it found a like-minded collaborator in Mastercard.

Mastercard in October announced key partners in a pilot of Mastercard Bill Pay Exchange, an initiative to connect diverse participants in the consumer bill-payment sphere, starting with a dozen partners including Payrailz and ConEd (the giant New York-based energy company), Avidia Bank and others.

The Glastonbury, Conn.-based startup got Mastercard’s attention because of the real-time payments work it's already doing with banks, said Orlando Santos, Payrailz’ vice president of strategy and innovation.

Payrailz in 2018 began working with Florida-based Suncoast Credit Union, providing a real-time payments-powered platform for consumer and business bill payment, bill negotiation services, P2P and account-to-account funds transfers. The services were “a big success,” Santos said, and a little over a year later Suncoast bought the $746 million Apollo Bank, the largest-ever bank acquisition by a credit union.

“Real-time payments technology is moving very quickly and it’s creating new opportunities for banks to overhaul their services, with bill payment and account-to-account funds transfer as a great starting point,” Santos said.

Mastercard sees the parallels between its new service and Payrailz, which is teaming with Mastercard on a pilot with certain undisclosed banks’ digital banking apps, leveraging both Payrailz’s Smart Payments Platform with Mastercard Bill Pay Exchange.

Mastercard aims to connect billers to banks and consumers through a centralized system, while Payrailz enables banks to send and receive real-time payments, whether they’re channeled through Mastercard’s new bill payment platform or other third parties, Santos said.

Bill payment isn't the only area where Payrailz is developing new services for banks.

“What we’ve found is that most banks are only receiving payments, while there is actually more value in sending payments for a variety of use cases,” he said.

Card networks are ideal partners for Payrailz’s technology because of their role as mass directories of banks, payers and payees, according to Santos.

But Payrailz is open to working with many third parties to deliver real-time payments technology for banks.

“We’re looking at use cases across the broad range of payments, where banks are the ones initiating services on the expanding network of new rails that real-time payments are opening up,” he said.

Banks that move quickly could beat rivals to tap new revenue sources. Writing for PayThink, Cross River Bank’s Phil Goldfeder noted that real-time payments present an opportunity for community banks in particular to level the playing field with larger financial institutions.

The advance of real-time payments also could take away key revenue sources for complacent banks and card networks that don’t find a way to adapt, according to Santos.

“Real-time payments will eventually change business models," Santos said. "There’s downward pressure on credit card interchange, and even the card networks see this coming. Overdraft fees will go away because money will be transferred in real time on a good-funds model so there will be no overdrafts. Wire transfers will fall away — no one will want to wait a day or even 40 minutes for funds to move from the one side of the country to the other, like we see today.”

Payrailz is in the early stages of developing products and services for banks, but it sees broad opportunity to innovate as real-time payments broadly reshape banks’ roles.

“Beyond bill payments and basic funds transfers, consumers and merchants are soon going to be demanding ‘conversational’ payments through various devices, and we want to be part of developing those use cases for banks,” he said.

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