It may not look like the U.S. needs real-time payments. But it really does.
There’s no disputing the fact that the benefits of real-time payments, whether for a payee or payer, are numerous —
transactions fulfilled in seconds, made at the convenience of the payer rather than the bank, and accompanied by rich remittance data for improved reconciliation by the payee.
Still, in the U.S., the forces that shape the outlook and ultimately drive adoption are fundamentally different than those driving faster payments globally. First, the stable infrastructure for transaction is a long-standing one. It’s worked. What’s more, the regulatory drivers and imperatives for better and faster access in the U.K. and elsewhere — especially for consumers — just didn’t exist here. In what is arguably the world’s most mature free market economy, it’s up to technology and industry leaders in the U.S. to drive the realities of revamping the existing payment system for one that fulfills the promise of a better and more modern way to do business.
But our collective work on the real-time payments front is not for naught. That's because consumer and business needs are evolving. The first generation of PayPal's early adopters are turning the corner toward retirement. Many of them, along with their millennial cohorts, are among the faster payment devotees using the likes of Venmo and Zelle. Their consumer behaviors are finding their way more strongly into the American workplace, particularly as millennials assume leadership in the senior management ranks of American business. Add to that a seismic re-examination of the role of technology as the great enabler of digitized speed, fueled by a disruptive global pandemic, and we’re reaching the tipping point.
There’s much more to real-time than fast. The pandemic has brought many real-life scenarios to the forefront that necessitate immediate cash flow, including a gig economy where daily payrolls and insurance payouts and loan disbursements for the Paycheck Protection Program are imperative. What’s also coming to light are added benefits like the conversational nature of real-time payments that open communication channels for easier reconciliation. These conversations, along with integrated remittance, lend valuable information about the payment. And because they travel together, funds don’t simply travel faster, they come with intelligence that trading partners can share. This conversational nature of payments is entirely consistent with our deepening desire for information on demand.
Hand in hand, those realities have businesses thinking differently about real-time. In a time of ongoing disruption in the provision of payments services, it’s also increasingly a point of differentiation for bank enablers.
Leading the real-time payments charge stateside is The Clearing House — the banking association and payments company owned by the largest commercial banks in the U.S. TCH launched its real-time payments platform (the RTP network) in November of 2017. The association’s diligence in creating a new payment system is now paying off. Adding to this effort are new initiatives such as Visa Direct and Mastercard Send, which are focused on making the ability to send and receive payments in real time simple and mainstream.
For late adopters, the tipping point has become a rally cry. There’s added pressure for them to stay competitive with those who embraced real-time payments earlier and who now have an advantage. Banks offering real-time payments experience an increase in transactional volume and are perceived as innovation leaders within the market.
For many banks, the hesitation to adopt could be attributed to a concern that implementing new connections are necessary to access the RTP network and that adding staff is necessary to provide support — making real-time payments cost-prohibitive. Those factors, combined with an uncertainty about how to best position the technology — create an analysis paralysis that maintains status quo, rather than providing a catalyst for innovation.
Adoption in the U.S. is accelerating as that “consumer informs business informs market” framework plays out, and there is growing demand that business payments follow the path the consumer payments already enjoy. And there is no doubt that the pandemic’s influence is pushing business payments transformation to its limits. The growing necessity of making contactless payments 24/7/365 (regardless of payee/payer location) has exponentially contributed to the momentum of real-time payments adoption in the US.
In addition to TCH’s RTP platform, the Fed’s FedNow real-time payments platform is targeted for a 2023/2024 release and will provide an additional means for financial institutions of all sizes to compete in the real-time payment arena. Intended as a neutral platform that will be flexible enough to process instant payments in a variety of formats, it will also include options for fraud prevention and the ability to process requests for payment — which are predicted to increase as businesses seek greater control over cash management.
As real-time payments capability becomes more widespread, and business/consumer expectations for applying faster payments continues to grow, the use cases for real-time platforms expand almost in tandem. The possibilities are endless.
With all the proven benefits to providing real-time payments services to customers, it’s no surprise we’ve seen a significant increase in inquiries from banks about adding real-time payments capabilities to their portfolios — for both corporate and retail customers. This demand is driving adoption, the continued innovation of TCH’s platform and the development of the FedNow Service — ushering in a new era of real-time payments in the U.S.