Immediate Payments Offer Strategic Advantage if the Price is Right
Spreading its coverage, the RTP network — the real-time payment system from The Clearing House (TCH) — now reaches 57% of U.S. demand-deposit accounts (DDAs), including those at regional and community banks, at a time when immediate payments have become increasingly important.
“We just passed a milestone of 100 banks on the network,” said James Colassano, senior vice president, product development and strategy at TCH.
In 2017, TCH began connecting its 25 owners, who are among the largest banks in the country. Then, in 2020, it started making the network available to all of the financial institutions in the country, mostly through the established technology providers — those institutions used to process transactions, including FIS, Jack Henry & Associates and Fiserv. Integrating the RTP network with those vendors’ systems has enabled 50 banks to join since the start of the fourth quarter 2020.
“By pre-integrating with the vendors, we’re now able to onboard banks at a rapid pace,” Colassano said, adding that those vendors’ bank clients bring the RTP network’s potential reach to 70% of DDAs, and TCH plans to connect the remaining technology vendors and specialized tech providers to cover the remaining market.
Of course, banks have to choose to join the network, and for those connecting through a pre-integrated technology vendor it is then mostly a matter of completing paperwork and a “thin” onboarding process, Colassano said.
The RTP network does provide several advantages over traditional payment systems. They include enabling payments up to $100,000 that are cleared and settled immediately, and only allowing credit push payments that keep the payer in control, rather than permitting the payee to debit the account at the risk of unanticipated overdrafts.
RTP adoption ultimately depends on demand from banks’ customers, and one of the most important questions remains to be answered: What is the cost?
Banks will determine the ultimate cost of RTP payments, based on factors such as the network’s liquidity and risk. Insurer Nationwide works with the largest financial institutions, mostly members of TCH that have already connected to the RTP network. However, said Timothy Dwyer, vice president and assistant treasurer at Nationwide, the cost for a payment over RTP is still unclear.
Unsurprisingly, the less expensive RTP payments are, the more uses banks’ corporate clients will likely find for them. Dwyer said Nationwide is considering RTP where it may provide strategic advantages, such as using telematics technology to measure the distance customers drive and charging them micropayments for car insurance.
“So a customer jumping in his or her car to pick up some eggs and milk for breakfast might pay $0.25 in insurance for that trip,” Dwyer said. “In a traditional payment environment, the savings would be chewed up by fees.”
That may still be a few years away. Arriving sooner could be improvements to the customer experience by giving adjusters the ability to provide them with payments for catastrophe claims right away, face-to-face. APIs already connect Nationwide’s billing and claims systems to its banks, and RTP would provide the final leg, sending the payment to the customer.
“Whether the adjuster is talking to the customer on the phone or in person, the customer will see the payment within seconds and get a sense of closure, and our adjusters will know the transaction is completed,” Dwyer said.
Colassano noted that the pandemic has accelerated the adoption of electronic payments, partly because paying by paper check has become more complicated and being able to pay the growing number of gig-economy workers rapidly has become a competitive advantage. Banks are especially interested in providing the service to their small-business customers, because the finality of settlement allows them to speed up their supply chains.
“The RTP network can speed up the settlement cycle for merchant funding by several days compared to traditional settlement methods, improving cash flow for businesses at a time when it has never been more critical,” Colassano said.
As RTP advances, make sure your organization is prepared for this digital future by downloading the AFP Payments Guide to Electronic and Real-Time Payments in Practice. The guide explores key issues that companies should consider before implementing real-time, and provides insight into the initial steps to begin implementation.