To build real-time payments, The Clearing House first built a partner network
With The Clearing House still targeting November for the launch of its Real-Time Payments service, it relies on a wide range of partnerships to introduce this offering to the banks that would use it.
The Clearing House, which serves as an operator of the Automated Clearing House network, has spent the better part of three years developing new rails for immediate payment and clearing — a system unrelated to the recent same-day ACH offering — with different use cases for banks and their customers in mind.
There is a key role for FIS, Jack Henry & Associates, D+H Corporation, ACI Worldwide and the banks to play in the new payment system's rollout, said Steve Ledford, senior vice president of product and strategy at The Clearing House.
"There are many different types of institutions, some that will come in direct, some needing a thin pipeline and some that will do a lot of integration with their core systems looking for a way to test it and try it out," Ledford said. "We've got great partners we are relying on to really take this to the banks and credit unions, because that's not something we can do."
In an effort to give banks more time to get their infrastructures prepared to accept real-time payment and settlement, FIS has launched a hosted Real-Time Payments Incubator to allow banks to connect to the faster payments rails and begin testing and taking part in the process without major investments.
FIS has worked closely with The Clearing House in developing integration facets of the real-time payments scheme, a system it has presented to the Federal Reserve in its efforts to bring nationwide and global faster payments options to U.S. banks and businesses.
"The pain point we are solving is that real-time volumes are going to be very low at the outset, and understandably it is hard to get cost justification to acquire a brand new infrastructure, much less get the people to set it up and run it," said Doug Gross, division executive for corporate banking solutions at FIS.
In the next 12 to 18 months, the real-time process will become more solidified as message sets are proven and banks determine the use cases and benefits, Gross said.
"The incubator helps alleviate resource pressure, cost pressure and volatility as it grows and matures," he added.
In other cases, a TCH partner is the primary provider of the services, creating the connection and core processing services for their clients and delivering real-time payments in that manner, Ledford said.
Omni-channel payments provider ACI Worldwide announced this week it also would provide a hosted cloud service for banks of all sizes to have access to the TCH scheme and back-office live testing that can initially save money for the banks.
ACI Worldwide is not just an interested bystander. The company is involved in providing much of the technology behind the new system as well as the ability for banks to access the service through the cloud.
"If you can imagine a train station in your mind, all of the financial institutions will connect to Union Station, which would be Jack Henry in the middle, and we'll connect to the faster payments network," said Deborah Phillips, the managing director of payment strategy at Jack Henry.
Jack Henry "hooked its wagon" early on to The Clearing House because it felt it was developing a real-time payments system that would deliver the needed services and stand the test of time, Phillips said. "We felt it would have appeal, not only for its members banks but for our customers as well."
"We have some use cases that are low-hanging fruit, but over time we will start to see a lot of innovation and creativity."
The process of marketing this new system could be similar to the days when service providers had to convince banks that direct deposit technology would grow to be a necessity, Phillips said. "We have some use cases that are low-hanging fruit, but over time we will start to see a lot of innovation and creativity in the industry around this," she said.
D+H Corp said it would allow banks to use its technology to test the real-time payments scheme and eventually operate through its global payments hub to send and receive those types of payments. D+H's recent efforts include working with Corporate One Federal Credit Union to expand the real-time payments access to credit unions.
For FIS, it made the most sense to establish a hosted service for banks experience real-time payments and test the technology's use cases.
"We do hosting today for thousands of banks, and what we can do is take that same software and put it in an FIS data center, and call it an incubator because it is in early stage," Gross said. "But people need access to the real code and we will deploy it."
Banks can connect to the FIS incubator through an application interface or web-based services, and FIS will operate it. "In the next several months, they can decide to take it in-house or through an application service provider, however they would like to do it," Gross added.
At its launch, TCH real-time payments will provide an alternative for person-to-person services like the bank-supported Zelle, as well as handle requests for small businesses and corporations.
When banks connect through the incubator and begin experiencing the process, it will lead to more questions and new ideas, said Elena Whisler, vice president of product management and strategy for corporate banking solutions at FIS.
"The word-of-mouth is already happening regarding potential use cases," she added. "If you asked banks a year ago about use cases, they would have no answers. Now, many we talk to are already talking about all of the potential uses."