With so many different parties working to bring real-time payments to the United States, it seems inevitable that the vision will become a reality. But how soon that day will come remains a topic of debate.
Several bank-led projects to bring fast payments to consumers are set to be rolled out this year. For banks and credit unions, the ability to give customers and members instant payments is a no-brainer that could greatly enhance loyalty and experience, especially as consumers have become more and more used to digital financial convenience.
“I think 2017 will be the year real-time payments come to fruition,” said Braden More, the head of payment strategy at Wells Fargo.
Wells is one of the U.S. banks bullish on real-time payments; it is one of the banks that partnered on the person-to-person mobile payments service Zelle last year, which claims it will feature real-time payments capability. It is also one of the bank members of The Clearing House, which is seeking to create a next-generation faster payments system. Meanwhile, a task force organized by the Federal Reserve is considering 19 separate proposals for a faster U.S. payment system, including the one from The Clearing House.
Given that so many different parties are working on real-time payments, More said he believes the efforts will lead to a tipping point this year and that bank customers will benefit.
“It’s not just Zelle, you have the Fed, and there is just so much energy in the market addressing this,” he said. “It’s a big consumer need that needs solving; there are so many use cases for people needing money quickly.”
In fact, it could be demand from consumers, particularly millennials, that spurs banks to invest even further in real-time payments, said Karla Friede, CEO of Nvoicepay, a payments technology company.
“Younger consumers especially don’t really want to deal with banks,” she said. “Banks are already losing these consumers to services like Venmo.”
Others agree that it is imperative for financial institutions to start offering instant payments. The technology company D+H said in January it is offering banks a cloud-based testing environment to simulate connectivity to The Clearing House’s real-time payments system. The idea is to provide all FIs with a “low-risk environment to experiment with real-time payments and experience its benefits,” said Steve Ledford, senior vice president for product and strategy at The Clearing House.
Still, others are say that while real-time payments may be gaining steam, mass adoption only will occur down the road.
“I think the first step is same-day payments, and getting to that point this year seems encouraging,” said Peter Olynick, senior practice lead for retail banking at NTT Data Consulting. “Real-time payments, I think, is going to be a bit slower. Will it happen this decade? Probably, but I’m not sure about this year.”
Olynick said that while it is encouraging that real-time payment rails and systems are being developed, it will still take some effort on the part of banks to upgrade legacy systems to facilitate real-time transactions.
“Right now bank legacy infrastructures use batch processing,” he said. “It’s not just about the [payment] rails but the bank systems as well. To drive 100 miles per hour, you need both better roads and better cars as well. Processes need to be upgraded on both sides.”
Olynick said that banks are undertaking efforts to upgrade systems but at a rate that is not fast enough for the majority of the consumers to see a difference this year.
“I think for those of us in the trenches, on a day-to-day basis we are seeing real movement in this area,” he said. “But to the general consumer it’s less obvious. The industry is working on this bridge, but only when you get a lot further along building it are more people going to be able to cross the river. It’s infrastructure work, which by its very nature takes time.”
But with efforts like Zelle – which can reach more than 75 million consumers through its member banks, its backers say – and others, Wells Fargo’s More believes real-time payments is poised to break into the mainstream.
“There are a number of real-time payments systems coming to market,” he said. “Some are bank-led and others won’t be, but overall it is an exciting time in payments.”