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Treasury Technology

Real-Time Payment Volume Reaches Critical Point

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April 30, 2019

New payment types facilitate corporates’ B2B and B2C payments.

financial system softwareSeemingly a long time in arriving, The Clearing House’s Real-Time Payment (RTP) network appears to have reached a critical volume level that will likely touch most corporates this year, providing them with payment settlements within seconds and new payment types that increase efficiency and reduce risk—but at a cost.

The Clearing House (TCH) began testing RTP payments two and a half years ago, well before the Faster Payments Task Force, comprising a diverse collection of stakeholders, released its final report in summer 2017. The private initiative began actively facilitating payments in November 2017; Bank of New York Mellon (BNY Mellon) was the first bank to go live with the system. It brought on 10 more banks, including Bank of America, that by year-end 2018 represented 48% of deposit accounts in the US.

Comercia and Regions Bank, among the 25 large banks that own TCH, began actively using the network earlier this year, bringing that percentage up to nearly 50%. Those large banks connect directly to the network. TCH is currently working to provide access to banks and credit unions through connections with their third-party technology-infrastructure providers, such as FIS and Jack Henry.

“We expect to start onboarding the first set of banks through third parties probably in the second quarter,” said James Colassano, SVP, product development and strategy at The Clearing House.

Mr. Colassano said that reaching the 50% threshold was critical to generate interest from banks’ corporate customers. “Most corporate customers don’t get excited if they can reach only a small portion of their clients,” he said, adding that “competitive juices are now coming into play among the banks, and corporates are starting to ask their banks what they are doing in this space.”

The large banks used the RTP system last year mainly for one-off, business-to-business payments to parties they selected, “friends and family activity,” Mr. Colassano said—to test the system and gauge how it could work in their environments. Those RTP applications have been expanded, now that there are 15 banks instead of five in the first part of last year

“Those one-time payments included after-hours payments, emergency payments, and some were looking at the wires they send now and trying them over the RTP network to see how it works,” Mr. Colassano said.
More recently, he added, banks have started to enable corporate clients to make employee-reimbursement payments as well as make immediate payments to gig-economy workers, an effective recruitment tool, and other payments to workers and consumers. And in the opposite direction, at least one insurance company is enabling customers to take advantage of the RTP network’s 24/7/365 availability to make initial and ongoing payments; such payments traditionally have been made by check, and often after-hours or over the weekend.

Mr. Colassano said banks are now looking at those types of higher-volume payments to gain scale. Another example that is common between financial institutions is account-to-account transfers, typically from an investment account to a transaction account to fund various activities, a process that could take three or more days using traditional ACH transfers.

“Banks want to broadly introduce these large-scale disbursements as a way to get people to use RTP payments,” Mr. Colassano said.

In that vein, TCH is working with eight banks to develop a bank bill-pay application that will leverage RTP messaging capabilities, likely testing it by the third quarter and launching it more broadly early in 2020. A biller will be able to generate a request-for-payment through the bank’s bill-pay application, and then the consumer or business will be able to respond with a payment that’s settled immediately.

Such applications can generate “massive” payment volume, Mr. Colassano said, and, incorporating RTP benefits, can provide bank customers with the certainty that the payment has been made, instead of showing up in an account potentially several days later. He added that it also eliminates instances where billers are getting payments without the information necessary for them to update their accounts receivable applications.

In bill-pay applications today, bills may be sent via email and traditional mail, and some banking platforms allow customers to sign up for e-bills, but the there’s no way for the biller to get the billing information directly to customers via the bank application. Using the RTP network, the biller will be able to send the billing information along with the request for payment, and the billed parties can choose when to make the payment and know that the money is leaving their accounts the moment the payment is posted.

“In the application itself the customer will see an acknowledgement that the bill has been paid,” Mr. Colassano said. “From the research we’ve done, that piece of feedback is probably the critical element that every consumer is looking for.” He added that as banks’ customers become accustomed to RTP payments, the goal is to start introducing more messaging functionality, adding value to payment immediacy.

Carl Slabicki, director of immediate payments at BNY Mellon, pointed out that RTP messaging that transmits information like confirmation that a bill has been paid, can enable invoice information to be sent back and forth and support multiple invoices and discounts. The bank has also discussed offering request-for-payment messages as an e-invoice, facilitating the B2B payment process.

“Companies can get into the shallow end now, testing out the service, and as message types become more broadly used by banks and business partners, they can scale with the market. This will help drive payment and messaging flows to more efficient payment methods such as RTP,” Mr. Slabicki said.

He said that ACH will likely continue to be the most economic means for payments for some time, especially for recurring payments where there’s no urgency to make the payment. Same-day ACH payments, he noted, incur an interbank fee, and RTP payments will broaden the menu of available payment types at different price points.

Mr. Slabicki added that BNY Mellon foresees the majority of its RTP volume originating in the comprehensive payable files it already provides to corporate customers. They enable companies to send instructions for initiating multiple payment types to the bank in a single, consolidated file, and BNY Mellon is adding RTP to those files, so it is simply another type of transaction that can be leveraged through the same channel. Corporates won’t have to go through a significant coding exercise to incorporate RTP in their treasury workstations or other system generating the payment files, and instead one or two fields to alert the bank it’s an RTP.

“It’s really relieving the technical burden on them to use the service,” Mr. Slabicki said.

That will become increasingly relevant as smaller banks’ technology providers integrate RTP.

“Most corporate customers, especially B2B customers, will be with the larger cash management banks. But for companies to meet every customer in their portfolios, especially regional service providers such as telecom and energy companies, they’ll have to make sure they can reach those who bank at all financial institutions across the country.”

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