The Clearing House (TCH) provided insights into its future strategy for its Real Time Payments (RTP) system during a June conference in New York. But while the banking association’s plans are ambitious, there’s still a big question about how quickly corporate treasury professionals will adopt this service, even as it boasts payments that settle in seconds, 24/7/365.
Russ Waterhouse, executive vice president, product development and strategy, began by noting that while there are currently seven banks on the system, TCH has plans to expand it to many more. “For it to be successful, RTP needs to have the broadest reach possible,” Waterhouse said. “We want to achieve true ubiquity.”
TCH expects to have more than 100 financial institutions on the system by the end of this year and plans to onboard about 2,000 per quarter in 2019, with a goal of full ubiquity by the end of 2020. Waterhouse noted that such a goal will take a lot of hard work by banks, their core technology providers and TCH, but nevertheless achievable.
Waterhouse added there are plans to make the service more accessible to treasurers. “We've reached out to major ERP system providers about working with their systems to bring RTP to corporates,” he said.
But do treasury professionals need RTP? It will depend primarily on whether they can see the value. One banker in attendance at the conference remarked that the “turning point for RTP will be more end-users doing the math and seeing the cost savings.”
But for that to happen, banks may need to do a better job of articulating the value to end-users, noted a representative from another bank that has adopted RTP. End-users can’t be expected to do banks’ work for them. “Customers aren’t going to say: I want RTP, I need it. That’s not going to happen,” he said. “People aren’t just going to become payments experts.”
The bank representative noted that financial institutions will need to really show corporates practical use cases. “What you need to do is show how real-time can help in things they know,” he said. “Talk to them about how it can improve payroll and ACH. Give them a story of how you can send someone a message on their iPhone that they owe their bill, and they can make a single click and pay it. People will say ‘Wow, that’s what RTP is?’”
Another banker and early RTP adopter explained that his organization has tried similar tactics. “When we talk to corporate clients about RTP, we explain that we’ve added to our arsenal,” he said. “We don't talk about a product; we talk about how to facilitate a payment.”
A representative from a payroll company agreed that messaging and ease-of-use will be critical to RTP’s success. “Build it and they will come,” he said. “You've got the guaranteed funds, but it has to be easy to use for the end-users.”
Members of AFP’s Treasury Advisory Group (TAG) got a firsthand look at RTP’s system during a meeting last month in Denver. Andrew Haskell, vice president, senior product manager of BNY Treasury, provided an overview of RTP to the group.
Haskell reminded attendees that RTP is the first new payment rail launched in the United States since the launch of the ACH network in 1974. While the U.S. has seen many technological advancements since then, payments have remained generally stagnant until November 13, 2017, when BNY Mellon and US Bank completed the first real-time transaction on TCH’s system.
“From end to end—from the time that the funds were debited from the account at BNY Mellon to the time when they were received and credited to the receiver’s account at US Bank—the transaction took three seconds,” Haskell said. “That’s a dramatic change in the marketplace today.”
But while the TAG members in attendance seemed impressed, many of them indicated that their primary concerns lie elsewhere. “Every time something new like RTP comes along, it us in a position of, ‘What do we adopt?’” said one treasurer in attendance. “What do we, as a corporate treasury department, put our resources toward?’”
Another treasurer noted that while RTP’s 24/7/365 availability is a nice-to-have, some treasury departments won’t make use of the capability. “If I don’t have a staff to work on a Saturday, I don’t care. And they’re not going to post it to my account until Monday,” she said. “I’m not going to start pulling in a team of people to work on weekends because this is available.
However, another treasurer countered that retailers in particular may find the service very useful for multiple reasons, given that the majority of their businesses operate on the weekends. “You don’t actually get the funds posting on the weekends, but there are merchant business dates on Saturday and Sunday,” he said. “You’re not obligated to do anything with it. But for some organizations, the speed of payment may not be the thing that motivates them to use RTP. It might be the information flow, it might be the finality of settlement. You have to take all those things into consideration.
If RTP does catch on, there is, of course, the hope that it could replace antiquated payment methods—particularly checks. But remember, ACH has been around since 1974, and checks are still used heavily in B2B payments in the U.S. And why? One TAG treasurer put it bluntly: “Checks work and it’s hard to kill something that actually works.”
The Payments Track at AFP 2018 features multiple sessions on real-time payments. Learn more here.