The arrival of widespread payments settled in real time appears inevitable in the United States, and support of the primary initiative to achieve that goal looks to be snowballing.
Uber, Amazon and other companies conducting business over the internet provide their services in real time, but the associated payments can take several hours and more often a day or longer to catch up.
“It becomes dissatisfying when you can do everything online in real time, but the payments can’t move as quickly,” said Thomas Spataro, CTP, U.S. treasurer at Computershare, the largest stock transfer agent that provides corporate trust, stock transfer and employee share plan services globally. The company makes 50 million payments a year and also receives millions of payments.
Spataro has been working closely with his company’s banks to implement real-time payments using The Clearing House’s Real Time Payments (RTP) network, which settles payments in real time. The network was launched in autumn 2017 and has gained significant traction this year.
“The first time we did an RTP payment, it literally took a few seconds to move between two banks—I couldn’t even get over to other the desk fast enough—it was already on the screen when I arrived,” said Spataro, who will discuss using RTP in a session at AFP 2019. “We knew it was there, our balances were updated, and it was great having that finality.”
Also working closely with its banks on RTP solutions has been Conduent, a New Jersey-based provider of digital platforms that facilitate transaction-intensive functions including accounts payable (A/P) and accounts receivable (A/R). Its clients include corporates, financial institutions and governments. Sandra Williams, general manager of banking, insurance and capital markets, said that Conduent anticipates soon launching RTP pilots in three of its key verticals: transportation, government and insurance.
“Our initial uses cases will be transforming paper to digital, reducing fraud and improving timeliness and compliance,” Williams said.
RTP MAKES PROGRESS
RTP reached a milestone earlier this year when its 16th largest bank, HSBC, connected directly to the RTP Switch, in total representing 51% of demand deposit account (DDA) balances in the U.S. The much smaller Avidia Bank, with $1.6 billion in assets, is offering RTP capabilities through PayFi, said James Colassano, SVP, product development and strategy at TCH. Other third parties servicing regional banks, including FIS, Jack Henry, Finastra, and BNY Mellon, are either connected to RTP or planning to implement it, he said, adding that TCH expects the number of banks directly connecting to the RTP Switch to nearly double by year-end.
Reaching as many banks as possible is critical to assure RTP users that payments will, in fact, arrive and settle in real time. Recognizing the need for such a payment system, the Federal Reserve requested comment last October on the actions it could take. In a letter to senators dated July 26, 2019, Fed Chairman Jerome Powell said the Fed is “seriously considering” proceeding with a 24/7/365 payment service and expanding the hours of its settlement service to match. Less than two weeks later, the Fed revealed that it is developing a round-the-clock, real-time payment and settlement service. Dubbed the FedNow℠ Service, it will likely make its debut in 2023 or 2024.
Whether the Fed’s system ultimately supports RTP or competes against it, RTP offers attractive features, including its credit push system that requests payer approval, whether from a consumer or corporate, before the payment is made.
Spataro said that the request-for-payment approach will be very helpful when collecting outstanding payments, invoices and payments for products that require timely funds transfers to finalize or clear up a transaction. Today, some transactions can be reversed after the transaction has happened, and if they are tied to securities then it can cause a lot of work and cost between the financial institutions.
“When we pull money from an account using RTP, it’s final,” Spataro said. “Now we can confidently do the transactions on the business end without having any issues.”
Williams also favored RTP’s instant settlement, irrevocability and request-for-payment systems, and she pointed to its sophisticated messaging, something other payment methods do not offer. For example, she said that the messaging capability will facilitate A/P and A/R functions, especially for smaller businesses’ B2B transactions.
“Our clients will be able to take advantage of discounts more easily and manage their cash better,” Williams said. “We see a lot of the costly and risky payables transactions disappearing.”
The use cases for RTP early on were mainly low-volume, irregular payments, often cash based and somewhat urgent. Gig economy workers, for example, like to be paid for their work soon after it is completed, and Colassano noted that RTP is being used to pay entertainers or staff at sporting events. In the last year, Colassano said, members of the RTP corporate advisory council organized by TCH have focused more on the control that the payment system provides and the potential for higher-volume payments.
Spataro said Computershare has also recognized the potential for higher-volume RTP payments, so it has sought to “get ahead of that trend” by working with its banks to implement RTP in their payment applications. The intent is to ensure that the reference information for RTP payments in their BAI files—the format for performing electronic cash-management-balance reporting—is recognized by Computershare’s systems.
“One thing we don’t want is for payments coming through our systems at high volume to cause a lot of issues for us,” he said.
To facilitate adoption of RTP among an increasingly long list of payment methods, BNY Mellon and other large banks are working on solutions that avoid requiring corporates to adopt a new format and connectivity method. Carl Slabicki, product-group manager for immediate payments at BNY Mellon and also an AFP 2019 speaker, said his bank is working to provide corporate customers with a menu of payment options they can quickly choose from.
“We’ve added the ability to enter RTPs online, so they can use our online corporate cash-management portal to enter, approve and get reporting on RTPs, so if they already use the portal to access wires and ACH, now RTP is there as well,” Slabicki said. “And we’re also exposing it as an API for clients who want to integrate it with a local system, like an ERP system, treasury workstation, or accounts-payable platform.”
Slabicki added that BNY has a number of clients now set up online to do one-off payments through the portal, and the bank is actively working with several of them to do vendor payments and B2C disbursements such as dividend payments, insurance claim payments, interest payments, and refunds.
TCH’s advisory committee comprises mainly very large companies, but if RTP really does begin to snowball, smaller companies should start considering how to receive those payments 24/7/365, even if they’re not yet ready to send them.
“If you have a TMS [provider], you should be talking to them to see how they can help,” Spataro said. “And you should also be talking to your banks to see how this is going to work with everything you do.”