Why wait for FedNow? Sign-ups surge for The Clearing House's rival real-time rail
CHICAGO — The Clearing House has been quite clear that it did not think the Federal Reserve's FedNow real-time settlement service would be necessary. But some of its executives are rethinking that stance.
Since the Fed announced this month that its service would be in widespread use by 2024, The Clearing House has enjoyed a significant jump in sign-ups and inquiries about its own Real-Time Payments rails.
"We've had a great deal of interest generated by the Fed announcement, almost three times as much activity," said Steve Ledford, the RTP network product executive for The Clearing House.
This type of increase in awareness is important to TCH and the payments industry, Ledford said Tuesday at the annual Mobile Payments Conference. "We are constantly adding users to the network, and working with financial institutions and billers to prime the pump of our request-for-payment service."
With more users comes more use cases, including the ability for consumers to be alerted about payments due through the request for payment service, and then making those payments immediately, Ledford added.
"It's really all about instant messaging now," said Peter Gordon, head of growth at PayFi, a technology company helping banks convert legacy systems into modern payments infrastructure. "It's not really an instant payments network, it is a rich data network, one making an instant exchange of messaging attached to payments."
That, in part, is why it has been emphasized for years that faster payments rails have to operate with the ISO 20022 messaging standard, one that allows much information about a payment to be attached.
The growth of faster payments speaks directly to instant gratification for consumers. It's a trait those consumers carry over to nearly every other service that a bank or payments provider can provide.
"As in faster payments, what we really want to get to is the instant gratification that as goods and services are provided that the reward part is right away as well," said Renee Schuurman, global head of product development channels for Citi. "It should be similar for returns or refunds, as those should be delivered instantly as well."
It is a massive undertaking to convert banks' legacy systems into more modern payments and services providers, Schuurman added.
"It will take a long time and have some very deep ramifications," he said. "The entire ecosystem as we operate, with clearing and settlement networks in the middle, will have to become full 24/7 service and we need to implement that."
In citing an example of how far technology has advanced, but still has a way to go, Schuurman said he was an early advocate of Fiserv's PopMoney P2P service seven years ago, but quickly became disenchanted with it.
"It would pop on my phone right away" when sending money, "but the person next to me, it would not pop on their phone for another three days," he said.
Over time, Fiserv advanced its PopMoney service. Still, the Fed knew that a changing technology landscape existed, so it spent years making sure every aspect of its service would be in place to deliver immediately to a consumer base that increasingly expects every aspect of their financial and personal lives to flow without friction.
"We talk a lot about speed, but there is a lot of opportunity with the rich data that faster payments offers," said Kassi Quimby, vice president of faster payments strategy at the Chicago Federal Reserve. "In our discussion leading up to FedNow, we first talked a lot about the availability of the service being 24/7, 365 days a year."
Over the next few months, the Fed will be obtaining feedback and working with financial institutions to get a full understanding of what design and requirements the FedNow should deliver, Quimby said.
Comments and direct feedback will help the Fed get a final service description delivered in a few months that would include a more specific timeline as to when FedNow services would be available.
In the meantime, the card networks are not standing by idly watching faster payments developments.
Mastercard plans to launch the Mastercard Bill Pay Exchange by October, bringing a bill payment portal to consumers that would allow real-time payments through the Mastercard Remote Payment and Presentment Service (RPPS) and its Vocalink faster payments rails.
"Thirty percent of all consumer payments are to pay bills, and the other 70% is payments for purchases or person-to-person," said Russ Barenboym, vice president of product development innovation for North America at Mastercard.
One of the main consumer pain points that the bill exchange hopes to address is that consumers are tired of having their account information held by numerous biller sites.
"It is a cause of some anxiety when knowing your information is out there," Barenboym said. "Plus, when making those payments, the funds generally are not instant and there is no acknowledgment of a payment being made."