By Patti Murphy
The transition to faster payment settlements is revving up, and the once lofty goal of real-time payments is becoming a reality for many. "It's real," said Steve Ledford, senior vice president for product strategy and development at The Clearing House. A typical transaction over RTP, the real-time network built and operated by TCH, takes about three seconds from initiation to receipt of good funds.
"When you do everything in real time, everything gets a lot simpler," Ledford said. "This has been a big deal during [pandemic] lockdowns." Take merchant payouts, for example. Leading payment processor Elavon, owned by U.S. Bank, an RTP participating bank, rides the RTP rails to fund merchant accounts within hours of batch closeouts, according to Steven Velasquez, head of partner business development at Elavon.
Samuel Murrant, lead payments analyst at the data analytics firm GlobalData, said the COVID-19 pandemic whetted the appetites of many for real-time P2P payments. "[T]he pandemic has provided an opportunity to accelerate the growth path for these instruments," Murrant said. He expects demand to bleed over into ecommerce and eventually in-store transactions "once enough consumers recognize real-time payment brands and the user base is high enough to deliver sufficient value to merchants."
Checkout.com, a merchant services provider specializing in international payments for ecommerce businesses, launched a product in April 2021 that allows disbursements in near real-time (about 30 minutes) to about 4 billion cards in 174 countries, using Visa Direct and Mastercard Send. Payments can be sent to debit, credit, prepaid and small business debit cards, a spokesman stated. MoneyGram, the cryptocurrency platform Coinbase, and the online money transfer service Wise are among those already using the new service, which Checkout.com calls Payouts.
Visa Direct and Mastercard Send are platforms developed by the card brands to support the "pushing" of money to FI-issued debit cards. "Visa Direct is an important component of making payouts as simple, quick and secure as consumer payments are today," Ruben Salazar, senior vice president and global head for Visa Direct, said in a statement released by Checkout.com.
GlobalData and ACI Worldwide recently analyzed real-time account-to-account payment volumes in 48 countries and determined that more than 70.3 billion were processed globally in 2020, a 41 percent surge over 2019. The combined value of these transactions rose 32.8 percent last year to $92 trillion, the companies reported.
In the United States, there were 1.2 billion real-time payments last year, making it the ninth largest real-time payment market, behind the likes of Brazil, India, China and the United Kingdom.
Many of those U.S. payments likely involved RTP. Although TCH does not publish network data, RTP "moves millions of transactions a month" and "several billion dollars a month in value," Ledford said. Those numbers are growing at rates around 10 percent per year, and described merchant account funding as "a fairly decent share of our overall volume," he added.
Jack Baldwin, chairman of BHMI, which develops software solutions for back-office electronic payments processing, said the card brands should be concerned about the growth of real-time payments. "Things like Zelle and RTP will drain transactions off their networks," he said. "Merchants can use these to bypass the networks and deny them interchange revenue."
In February 2021, RTP integrated with Zelle, the P2P network operated by Early Warning Services, a fintech owned by many of the same banks that own TCH. Bank of America and PNC Bank are the first to offer instant Zelle payments using RTP, but the integration can easily be leveraged to support other financial institutions (FIs) that want to offer Zelle customers a true instant payment experience, Ledford said.
Eventually, businesses will be able to use Zelle and RTP to send bills electronically and request payment, with only a customer's mobile number or email address. "Combining the speed of Zelle and the RTP network will create new powerful opportunities for companies to seamlessly and efficiently interact with consumers and small businesses," said Chris Ward, executive vice president and head of product and operations at PNC Treasury Management.
RTP currently counts 20 FIs with direct links into RTP; about 100 connect through third-party processors. The thousands of other FIs in the United States all will eventually be able to link to RTP through third-party processors, a spokesman noted.
RTP also is being used by Venmo to support instant payments, as well as Dwolla and other payments disruptors. Some companies are using the network to support instant payroll; others use it for insurance payouts, Ledford noted. Many companies also use other faster payments options, like same-day ACH and push payments to debit cards, depending on situational needs, he added.
Additionally, RTP is used to support B2B factoring applications, Ledford stated, adding that TCH is continually working to build out additional RTP use cases. "Folks are getting really creative with the use cases they bring us," he said.
The most recent use case, heralded by TCH in late April, supports real-time payouts for iGaming and sports wagering, like DraftKings and PartyPoker. The capability, offered through gaming payment company Mazooma and Fifth Third Bank, supports immediate payouts on winning bets to bank accounts 24/7/365.
The Federal Reserve is readying another faster payments option, FedNow, slated for launch in 2023. It will be available to any FI maintaining reserve accounts with the Fed. The Fed, in a statement, said FedNow "will provide choice in the market for clearing and settling instant payments." Baldwin predicted the Fed will be a unifying force "by creating bridges from one network to others."
Although the network plumbing exists to support real-time payments, many FIs and back-end processors may struggle with the transition to real-time payments. "Getting financial institutions and processors to move to a faster payments environment will cost a lot of money and take a lot of time," Baldwin said. "They still need to support legacy systems, which means they will be supporting two divergent processing streams. Neo and challenger banks don't have to carry that legacy baggage."
Several providers of back-office payment processing software, including BHMI, have been focused on easing the transition. BHMI's Concourse Financial Software Suite features a rules-based engine that provides continuous back-office processing for all types of electronic payment activity of client FIs. It features modular solutions for various components of the transaction lifecycle, Baldwin noted.
In a traditional scenario, payment transactions are accumulated in one or more FI holding files and processed in batches at set times each day, which can be a time-consuming process. With Concourse, each transaction that comes into the system is loaded into a repository and processed to completion, or as close as possible to completion. Then when cutover time arrives, everything has already been processed and is ready for settlement. This simplifies settlement, which becomes ever more important as FIs move to multiple cutoffs per day in support of faster payments
"We can support batch and near real-time payments and the associated processing at the same time," Baldwin said.
Patti Murphy is senior editor at The Green Sheet and co-host of the Merchant Sales Podcast. Follow her on Twitter @GS_PayMaven.
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