BOSTON – Corporate treasury professionals have generally been interested in faster and real-time payments, but many still look at it as a nice-to-have, largely because they don’t necessarily feel they need the capability right now. A panel at Sunday’s AFP 2019 Payments Symposium, sponsored by Nacha, looked at the struggle that faster payments have had in the United States and attempted to gauge whether greater adoption is imminent.
Magnus Carlsson, Manager of Treasury and Payments for AFP, opened roundtable discussion by going through some of the 2019 AFP Electronic Payments Survey and highlighting a few key points. First, the study found that the speed of settlement is becoming more important to treasury and finance professionals. Additionally, respondents identified possible uses cases, like last minute bill payments, and emergency payroll.
But while the survey found many potential use cases for faster/real-time payments, there is still a question of whether corporates have serious plans to put them into action. “It needs to trickle down to the actualities,” Carlsson said. “What can you actually do with faster and real-time payments?”
FASTER PAYMENTS ADOPTION
Nacha’s Same Day ACH system has seen growth but it’s still very early on in the process, noted Michael Herd, Senior Vice President of Nacha. Same Day ACH payments are projected to hit about 250 million this year, bring its total to about 500 million since the service launched in late 2016. “That’s about 1% of total ACH volume,” he said. “We’re very optimistic about future growth, but I think it’s kind of indicative of where we are in the industry. Looking at the overall picture for Same Day, as well as faster and real-time payments, it’s still in its infancy.
However, Same Day is likely to see more adoption once the $25,000 threshold increases to $100,000 in March 2020. This has been a key barrier that has kept many treasury professionals from using the service. Nacha is also planning to increase the hours for Same Day ACH the following year, which may make it even more appealing to corporate practitioners.
As for real-time payments adoption, The Clearing House’s Real Time Payments (RTP) Network has been in effect since 2017, though it has struggled to gain mass adoption. Like Same Day ACH, it also has a $25,000 payment limit, though that is slated to increase. Additionally, the Federal Reserve is launching its own “round-the-clock real-time payment and settlement service” called FedNow. “But will RTP and FedNow be able to talk to each other? Will corporates need to sign up for both? That’s an ongoing question,” Carlsson said.
David Tao, Head of Payments and Treasury for Gusto, noted that part of the problem real-time has had catching on en masse is because both corporates and consumers have yet to find one particular use case where real-time fits in every case. “It’s not about a single use,” he said. “It’s about optionality.”
However, Tao has observed a demand for real-time, particularly when he was still with Uber. Many Uber drivers sought to be paid immediately, which resulted in Uber’s AFP 2018 Pinnacle Award winning daily payments solution, Instant Pay. Additionally, some of the smaller restaurants that Uber Eats works with were requesting to be payment in real-time because they have cash flow issues. “They push to get paid faster so they can keep stocking their inventory,” he said.
One area where faster and real-time payments have found a home is in B2C payments for insurance companies. Lynn Cirrincione, Director of Treasury, Cash and Banking Operations for Allstate Insurance Co., explained how, after Hurricane Katrina, her organization realized they couldn’t send checks to victims who were no longer in the New Orleans area. This ultimately led to Allstate making immediate payouts to its customers. That solution also won a Pinnacle Award in 2017.
However, these payments aren’t mandatory; Allstate will still send checks if that’s what customers prefer. “We allow the customer to decide,” she said. “They may not want or need it faster, but we leave it up to them.”
And that’s essentially where faster payments are right now. Organizations and consumers are interested in the service, and some would willingly use it for every payment. But as long as there are options out there and no government mandates like SEPA in the EU and Faster Payments in the UK, businesses will continue to only use the service when and where it makes sense. As such, that could mean that mass adoption in the U.S. may take a long time.
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