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Treasury Technology

Real-Time Payments Means Real-Time Efficiency

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July 16, 2019

As RTP ubiquity grows corporates explore its benefits in detail.

financial system softwareCorporate treasury executives may soon be talking to their companies’ bankers, if they haven’t already, about how real-time payments can not only make treasury more efficient but improve customer service company wide.

That was the conclusion drawn by most if not all of the members of the RTP Corporate Advisory Council, a group sponsored by The Clearing House (TCH) to provide input on its Real-Time Payments (RTP) network that was launched in 2017.

The RTP network is currently the preeminent real-time payment solution in the US for business-to-business (B2B) and business-to-consumer (B2C) payments. Earlier this year, it reached what its supporters consider a key threshold to pique the interest of corporates when it signed on its fifteenth large bank. Together those institutions represent half the demand-deposit accounts (DDAs) in the US. James Colassano, SVP, product development and strategy at TCH, said he expects the network to have 50 banks using it by year-end.

The Advisory Council was established soon after TCH launched RTP to learn about how the network works and provide feedback and insight. Early on, noted Mr. Colassano in an article in Banking Perspectives, a quarterly journal published by TCH and the Bank Policy Institute, corporates were waiting for their banks to develop use cases for the new payment rail. In less than a year, after mulling RTP’s potential, they began brainstorming on how the system could be used.

Early use cases focused almost exclusively on low volume “pain points” that are irregular and at times challenging to carry out, such as payments to entertainers or staff at sporting events. Consumers can make an emergency payment literally minutes before a bill is due and not worry about late fees because the payment hasn’t settled. And companies can make last–minute payrolls to avoid roiling employees and their unions.

In the last year, Mr. Colassano said, the Advisory Council members began focusing more on the precision and control TCH provides to make payments, in addition to speed, and the ability to know immediately when a payment was made and can be posted to accounts-receivable systems. They also recognized how RTP could enhance their competiveness. For example, in the search for talent, paying contractors as soon as their work is completed is very attractive to gig economy workers.

Mr. Colassano said that even the more skeptical participants in the Advisory Council began listing pilot-ready and immediately valuable use cases, including student tuition refunds, high-risk vendor payments, internal payments between divisions, and same-day exception payments.

“In short, this group transitioned from ‘curious observers’ to ‘engaged advocates’ to ‘enthusiastic early adopters,’” Mr. Colassano says.

He further notes that the RTP system’s more significant messaging capabilities, compared to other payment methods. was attractive to Advisory Council participants, giving their companies the ability to enhance customer service and experience. When a customer service issue is resolved, for example, a refund can be issued instantly, or a rebate sent to the customer.

“The conversational nature of messaging on the RTP network is perfect for enhancing the customer service component of any payment-related service encountered,” Mr. Colassano notes.

Alberto Casas, North American head of payments and receivables at Citi Treasury and Trade Solutions, said RTP’s robust messaging process between sender and receiver, using the ISO 2022 format, provides a clear understanding of what payment was sent and immediate acknowledgement that it was received and settled.

“That’s important because it’s the recognized global standard for messaging, so the platform has been built with forethought to allowing either [future] initiation of cross border payments, or interoperability with other platforms that operate on that standard,” Mr. Casas said.

Moving beyond low-volume, emergency-type payments, TCH has been working with banks to launch pilots in the second half of this year to handle consumer bill payments that today are often transacted on specific days of the month using the ACH automated debit service. However, consumers may have insufficient funds in their accounts, resulting in overdraft fees for them and processing complications for the payee.

Rather than the “credit pull” system employed by ACH, RTP issues a request for payment, or “credit push,” that the consumer or corporate payer must approve before the payment is made and executed, all but eliminating unauthorized payments. RTP users send requests for payment and approve payments entirely in the highly secure banking channel, a boon for consumers who no longer have go to each service provider’s website to make payments – although those provider’ banks must be connected to the network.

Instead of a replacement for conventional payment types, proponents of RTP want it to prompt exploration of how immediate payments can fundamentally change the processes and user experience around billing, payment, reconciliation and exception processing. Carl Slabicki, product-group manager for immediate payments at BNY Mellon, the first bank to adopt RTP in late 2017, noted that corporates today typically originate payments through a variety of bank channels and formats, some standardized such as Nacha formats for ACH payments and ISO standards, or proprietary formats for comprehensive payables.

Mr. Slabicki said that rather than introducing RTP as yet another channel or format offering, BNY Mellon has also enabled this new service through their existing channels and formats to help lower the barrier for adoption for clients.

“One of our big focuses has been comprehensive payables for corporates, offering seamlessly integrated channels and formats,” Mr. Slabicki said. “If we can use an ISO pain.001 message [a payments initiation message by ISO 20022 that shows a credit transfer message in XML format] for corporate credit origination, as an example, we should be able to let a corporate use that same format and message type to originate everything, whether it’s an RTP, wire, check or even Zelle disbursement.”

Clients accessing BNY’s online cash management portal to originate payments can now also enter and get approval and reporting for RTPs. The bank has also added RTP to its file services, as well as offering it via an application programming interface (API) for clients who want to integrate it with their local systems, including enterprise resource planning (ERP) systems, treasury workstations and accounts payable platforms. A spokesperson at SAP confirmed that the technology vendor discussed integrating RTP payments into its ERP.

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