There's no time to dither over real-time payments
The future of the real-time payments landscape in the U.S. has never been more unclear.
As it stands, The Clearing House RTP is the only live real-time payment network in the U.S. The Fed has announced its intention to build the FedNow network, which will be effectively a competitor to TCH, but we don’t know when this network will launch.
To add to the confusion, Zelle is sometimes described as real time but it only clears in real time (transactions still settle via either traditional ACH or debit card rails), while Same Day ACH clears and settles in a few hours depending on the submission time, making it viable for some "real-time" use cases.
The FedNow announcement offers financial institutions the prospect of greater choice in the real-time payments arena with its promise of immediate 24x7x365 account-to-account transfers. However, it has also frustrated the sponsors of the existing payment systems who have been expressing annoyance that the Fed is getting involved in this market.
In our opinion banks need to seize the opportunity to invest in real-time payments now to take advantage of growing customer demand rather than waiting around to see how FedNow compares to TCH RTP, or where Same Day ACH or Zelle are headed.
There will always be a role for ACH and wire, but real-time payments will eventually supersede same-day ACH and make inroads into lower-value wire traffic as well as some types of ACH. Why are we so confident about this? Because real-time payments have gained traction wherever they have been rolled out.
Faster payments now account for around a quarter of total U.K. payment volume. Swish has accelerated Sweden’s move to a cashless society for P2P payments (and is starting to be used by corporates) and similar trends have emerged in Colombia, Mexico, Singapore and elsewhere.
Rather than looking at the provision of real-time payments from the back-end perspective of what networks are available, U.S. banks would benefit from taking a customer experience perspective based on the demand for real-time payments. Banks need to offer products and services that meet this demand.
This is the case for other areas of payments such as retail or P2P transactions, which can be made 24/7 through a variety of devices. The same level of service needs to be available for corporate payments — in the future corporate treasurers will expect to be able to make real-time payments, just as they do in their consumer lives.
Banks should be thinking less about networks and more about what products they are going to offer, for example real-time insurance claims disbursements or intraday supplier payments. There are many possible use cases worth exploring.
To those who say there is no market demand for real-time payments, it is worth taking a closer look. When corporates ask for ways to simplify liquidity management, or to eliminate reconciliation issues with their receivables, or to lower the interchange fees on their gig-economy transactions, they are in fact asking for real-time payments. They don’t express it that way, but the demand is there.
Having multiple networks for clearing and settlement of certain transaction types is not new. Today, banks can clear and settle real-time gross settlement payments through either Fedwire or CHIPS, and the business or individual initiating the wire payment doesn’t know — or care which network is used. They care about whether their provider offers a better/faster/cheaper service and they will switch banks if necessary.
The same should be true for banks and real-time payment networks. Some institutions will connect to both TCH RTP and FedNow and choose the most appropriate routing option for their clients based on the limit or timing of the payment or other considerations. The most forward-thinking institutions will implement truly multi-network solutions, paving the way for future networks based on blockchain or other emergent technologies.
The role of vendors in this ecosystem is to serve as a trusted partner to banks, connecting them to one or more of these networks, and build and test customer experiences and products that will help them differentiate from their competition. Working together in this way, banks, fintechs and technology vendors can accelerate our common journey into a real-time payments world, no matter how many real-time clearing and settlement networks there are.