By Dale S. Laszig
DSL Direct LLC
Earning an acronym in payments is the ultimate high-five for an industry trend. The real-time payments (RTP) movement, not to be confused with Real-time Transport Protocol, is gaining worldwide momentum. FaceTime, Facebook Live, proximity marketing and location-based apps are fueling a widespread dependence on mobile technologies. The payments industry is implementing an array of real-time capabilities, advancing the RTP concept from implausible to inevitable.
NYPAY, a professional networking organization, recently reported a gathering storm of real-time payments initiatives, including the following:
In June 2015, NYPAY and Deloitte LLP co-hosted a networking event and panel discussion in New York City to explore real-time payments. NYPAY President David True noted a diversity of viewpoints among the four-member panel, which was moderated by Eric Piscini, Consulting Principal at Deloitte Banking and Technology.
Panel member Shari Krikorian, Senior Business Leader, Emerging Payments at Mastercard, advanced the idea of real-time payment through the eyes of consumers, who need and want to see accessible funds in their bank accounts that they can immediately use to buy things. From a technology perspective, this means real-time authorization when an issuer posts money to a bank account.
Eric Purdum, Vice President of FIS' PayNet Payments Network concurred with Krikorian's view, stating, "I'd add business to that concept, with funds posted to a business account immediately," versus inevitable delays associated with other transmittals such as wire transfers.
Ben Isaacson, Executive Director of Payments Strategy at JPMorgan Chase & Co., added, "I'd echo Shari's comments about immediate availability of funds; banks need to be an end-to-end system with risk management and governance that gives the bank the confidence to give the money [to a particular customer] right away."
Dan Gonzalez, Vice President of Payments Industry Relations for the Federal Reserve Bank of Chicago, prefaced his remarks with a disclaimer that his views were his own and not the official position of the U.S. government. He stated the Federal Reserve is involved in an ongoing initiative designed to energize payments providers.
The Fed is exploring real-time payments in the following use cases: emergency bill and healthcare payments; P2P; P2B bill pay; B2P payroll; and ad hoc high value payments, many of which are a vital concern for unbanked and underbanked consumers, Gonzalez noted. "We created a task force to bring together industry stakeholders to help define [real-time payments] where the commitment to pay can be as important as the settlement," he said.
The panelists' perspectives led NYPAY and Deloitte to conclude that devising an overarching definition of real-time payments will likely be a work in progress for the foreseeable future. But the industry has since made significant progress, both in building the necessary infrastructure to support real-time funds transfer capabilities and in managing expectations among consumers, merchants and financial institutions.
Payments analysts attribute the progress of real-time payments initiatives to a number of factors. Some analysts pointed to the need for hyper vigilance to protect against cybercrime. Others emphasized the need for accurate redemption of points and loyalty programs and the rising number of self-service use cases involving mobile banking and payments that would be better served by immediate responses from processing hosts.
"NACHA now supports the same-day settlement of most ACH credit payments," wrote Kathleen Dwyer, Principal Product Manager, Transaction Banking at ACI in an October 2016 blog post. Dwyer additionally noted an upcoming release of RTP by The Clearing House that will be widely available to U.S. financial institutions.
"Between NACHA same-day ACH and The Clearing House RTP, there are very few payments that don't have the ability to be settled same-day with low cost options," Dwyer noted. "This has the opportunity to truly change the way a corporation handles its money and interacts with both customers and vendors." ACI is at the forefront of the RTP movement, helping financial institutions implement ISO formats that support RTP and other emerging payment schemes. Dwyer stressed the need for these system-wide upgrades to ISO standards; legacy systems unable to support RTP will lose out on related benefits and opportunities, she stated.
A report titled Real-time payments are changing the reality of payments, published in 2015 by Deloitte Development LLC, examines RTP's evolving role. Current real-time payment systems are based on interbank electronic funds transfers initiated from smartphones, tablets, digital wallets, and the web, the authors stated. These schemes typically involve a low-value, real-time payment request followed by a secure account-to-account funds transfer and immediate notifications, the report stated. The authors further noted RTP's effect on consumers as they acclimate to faster settlements, "buy" buttons and instant paychecks. "While the concept of 'paying now' is not a new one – cash is an immediate payment transaction instrument after all – the growth of 'real-time payment' options has helped build a new standard among consumers," they wrote.
The Deloitte authors advocate for real-time payments as a way to enhance transaction visibility while improving cash management and liquidity. "The liquidity improvement can be especially impactful to small merchants who may be used to waiting days for their settlement, possibly creating a positive impact on their cash flow and daily sales outstanding (DSOs)," the authors wrote.
While the authors concede that cash is used "to conveniently exchange funds in an immediate fashion," they question its sustainability in an electronic commerce ecosystem that costs considerably less than $200 billion a year, which they claim is the U.S. cost of supporting cash.
Dave Lott, Payments Risk Expert, Retail Payments Forum at The Federal Reserve Bank of Atlanta, said the Fed is studying RTP but remains a staunch cash advocate. "We are strong cash supporters, allocating assets, resources and even earning money for engraving, printing and circulating cash," he said. And for many cash-based businesses, that is good news indeed.
Dale S. Laszig, Staff Writer at The Green Sheet and Managing Director at DSL Direct LLC, is a payments industry journalist and content provider. She can be reached at email@example.com and on Twitter at @DSLdirect.
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