By Patti Murphy
In today's always-on economy, faster is better. So it should come as no surprise that financial institutions and their technology partners are ramping up initiatives to support faster payments. Demand for faster payments is coming from all directions and is being driven by several use cases.
"Demand is coming from both consumers and businesses," said Rusiru Gunasena, senior director, JHA PayCenter, who noted demand is not yet overwhelming. "We're still in the early stages," he added. PayCenter is a proprietary payments hub developed by Jack Henry & Associates, a leading provider of core processing services to community banks and credit unions. PayCenter serves as a conduit that seamlessly connects banks and credit unions using Jack Henry core processing systems to faster payment networks.
"Everything seems to be coming together for real-time payments," said John Leekley, founder and CEO of RemoteDepositCapture.com. "It's more feasible now than it's ever been." Today, much of the banking industry has been focused on two faster payments initiatives: RTP and Zelle. Hubs like PayCenter are designed as single points of entry to these or any other faster payments schemes, eliminating most of the time and expense banks would spend building their own interfaces to each. "The benefit of a turnkey solution like this is that [institutions] can easily integrate with new networks" as they emerge, Gunasena said.
Zelle is a mobile person-to-person (P2P) payment network operated by Early Warning Services LLC, a consortium of many of the nation's largest banks. It has emerged as the banking industry's response to Venmo, the mobile payment network owned by PayPal. But it's still gearing up. Only about two dozen banks are active on Zelle. According to Early Warning, 147 million transactions valued at $39 billion were sent through the network during the first quarter of 2019.
RTP is a real-time payment network operated by The Clearing House, which is owned by two dozen of the nation's largest banks, including many of the owners of Early Warning. RTP was launched in late 2017; currently about half of TCH's owner banks are live on the network. TCH hasn't released transaction tallies. It has said that RTP is designed to handle both business-to-business and P2P payments.
Faster payments can mean different things in differing circumstances. For P2P payments, a mobile network like Zelle or Venmo can seem fast, as recipients see funds reflected in their account balances within minutes or hours. But settlement in final and irrevocable funds occurs on a batch basis, typically once or twice a day using the automated clearing house (ACH) system. RTP, as its name implies, is a real-time network, with transactions settled through a centralized clearing account pre-funded by participating financial institutions and managed by TCH. Gunasena pointed to several use cases for a real-time payment options, like RTP, including faster funding of merchant accounts by acquirers, employee reimbursements and rental payments.
The Federal Reserve said it is considering building its own real-time payment network. One of the Fed's mandates is that it provide payment services to all federally insured financial institutions, and many small banks and credit unions see the Fed as a less costly alternative to private-sector networks like RTP. Any movement by the Fed to support faster payments, however, will require that it be able to support real-time settlement 24 hours per day, seven days per week, 365 days per year. As it stands now, the Fed provides clearing and settlement of inter-bank payments between 7:30 a.m. and 5:30 p.m. Eastern, Monday through Friday, except for national holidays.
The Fed has been soliciting public comments on steps it can take to support faster inter-bank settlement of payments, including a 24/7/365 processing cycle and a liquidity management tool to support its own as well as private-sector real-time payment schemes. But the Fed's rulemaking process can be protracted, and most experts agree any new Fed real-time payment services are several years out.
The ACH also has been moving in the direction of faster payments. In recent years, NACHA ‒ The Electronic Payments Association (which oversees the ACH rules process) has opened two new clearing deadlines specifically for same-day settlement of both ACH credit and debit transactions. A third deadline is set to open in 2021. NACHA reported that 52.7 million same-day payments were sent through the ACH during the first quarter of 2019, a 24 percent increase over the first quarter of 2018.
The card brands also are getting behind faster payments. Mastercard owns VocaLink, which provides the technology backbone for TCH's RTP. It also operates Mastercard Send which can be used to send payments to debit and prepaid card accounts at Mastercard-issuing banks and credit unions.
In February 2019, MetaBank, one of the nation's largest issuers of prepaid debit cards, launched a new faster payments platform that incorporates Mastercard Send. "This platform enables our partners to deposit funds in near real-time, providing quicker access to funds for consumers and improved cash flow for businesses," said Sheree Thornsberry, MetaBank executive vice president and head of payments. She pointed to several use cases, including immediate payment of insurance claims, healthcare claims, tax refunds and paying gig economy workers.
The gig economy – which encompasses everything from ride- and home-sharing, to pet sitting and at-home coding – is expected to fuel faster payments momentum. A new study by Mastercard found that the global gig economy generated an estimated $204 billion in payments last year; it is projected to grow to a $455.2 billion market by year-end 2023.
On the wish lists of many gig workers and the platforms that support them are faster and more frequent payouts, stated Silvio Piserchia, vice president for global prepaid at Mastercard. "With our technical expertise and experience navigating complex payment ecosystems, we are already putting in the hours with our partners to make this a reality," Piserchia wrote in a recent blog post. For example, he noted, "hundreds of thousands of Uber and Lyft drivers" now get earnings deposited in real time through Mastercard Send.
Visa Direct is similar to Mastercard Send. It provides near-real-time payments (within 30 minutes of initiation) to traditional and prepaid debit card accounts. Visa partnered with Ingo Money on a service, Ingo QuickConnect, an integration tool that allows companies making disbursements to consumers or other businesses to push those payments to debit and prepaid debit cards using Visa Direct.
"We've heard time and again from customers that they need to deploy a push-to-card payment solution but are intimidated by the time and effort required," said Drew Edwards, CEO of Ingo Money. QuickConnect eliminates those pain points, "and allows a company to almost immediately begin offering real-time payments through Visa Direct, while retaining the ability to easily expand the solution later to include payments to online wallets like PayPal and Amazon, or to even cash out at Moneygram locations," Edwards added.
Meanwhile, in early May 2019, Visa acquired Earthport, a large, independent ACH network with international reach. "The acquisition of Earthport unleashes the power of Visa by taking us 'beyond the card,' empowering us to enable clients to make payments through bank accounts around the world," said Bill Sheley, head of global push payments at Visa.
Edwards said Ingo Money is focused on helping clients make payments to consumers and small businesses faster, and that its instant funding services are driving most of the company's growth.
Talie Baker, senior analyst at Aite Group, said instant funding options can be a big draw for small businesses and micro-merchants who are often plagued by cash flow problems. A survey she recently conducted of small business owners who receive disbursements from card acquirers or lenders revealed that "a significant portion" of these disbursements are made by check or ACH. The median cost to issue checks is between $2 and $4, she noted, adding that while the ACH is cheaper, it requires extra steps to protect customers' sensitive financial information. From the recipient's point of view, the standard two- to three-day settlement cycle can make ACH payments less attractive, she said.
Among business owners surveyed by Aite, 80 percent indicated they would be interested in instant funding from acquirers and lenders, and 80 percent of those businesses would be willing to pay a fee for faster payments, Baker said. What's more, 85 percent indicated they would change acquiring relationships if another merchant acquirer offered instant funding of card receipts.
"U.S. small businesses are alive, healthy and growing, making them a key market segment for merchant acquirers and small-business lenders," Baker said. "Providing real-time merchant settlement and loan disbursements can drive differentiation in a crowded market and improve the overall customer experience." Paying for faster service isn't a novel concept. Consumers and businesses already are accustomed to selecting the speed with which they ship packages, for example, Gunasena noted. He suggested a similar model could eventually emerge for payments.
Patti Murphy is senior editor at the Green Sheet and president of ProScribes Inc. Follow her on Twitter @GS_PayMaven.
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