Real-Time Payments: The Next Big Thing?

By Styskal, Wiese & Melchione

When it comes to electronic payments, consumers and businesses alike want convenience and immediacy. Faster payment initiatives have increasingly become more popular. Real-time payments are no new concept to other countries around the world. First introduced in the U.S. in November 2017 by The Clearing House, the RTP® network appears to be taking the bull by its horns and changing the game. This new development in electronic payments systems provides financial institutions the opportunity to offer new products and services to their customers, particularly commercial customers, for conveniently sending and receiving funds instantly. It is the first major upgrade in electronic payments since the Automated Clearing House (ACH) and Check 21. The RTP network is available to all federally insured financial institutions and can integrate with third-party service providers such as Fiserv, Jack Henry, and FIS. It also works across various customer segments including B2B, B2C, C2B, P2P, A2A, G2C, etc. Financial institutions also benefit from payments made over the RTP network because unlike same-day funds settlement over the ACH network which clear in batches and finally settle after the payments clear, payments on the RTP network clear and settle individually in real time with immediate finality. This also means, however, that payments over the RTP network are irrevocable and adoption of real-time payments could also present compliance and operational challenges for some institutions. While the RTP network has reached only a small number of financial institutions, it currently accounts for almost 50% of demand deposit accounts in the U.S. and other financial institutions are likely to follow.

The Federal Reserve also responded to the demands for faster payments by issuing a request for public comment in October 2018 on whether it should consider facilitating real-time 24x7x365 interbank settlement of faster payments. Consumers and businesses demanding faster payments is leading to an evolution in electronic payments systems. With what seems like the inevitable industry wide adoption of such infrastructure, financial institutions must consider whether adopting new capabilities will be required to meet customer expectations and to remain competitive in the industry.