GRUBHUB INC. Faster payments is an important topic that became even more important in 2020 during the pandemic.
In a recent Banking Exchange webinar,
So, what is a faster payment? According to the Bank for
Traditionally, it has taken a day or more (even weeks in the case of some cross-border transactions) after initiating a cashless retail payment until the funds reached the payee. Frequently, the initiation and processing of transactions has been limited to specific times during the day. These two limitations of traditional payments, payment speed and service availability, are the main features that fast payment initiatives aim to change.
Combined, these improvements provide end users with rapid availability of final funds on a nearly continuous basis and can, therefore, be used to define more formally the concept of 'fast payments.' For the purposes of this report, a 'fast payment' is defined as a payment in which the transmission of the payment message and the availability of 'final' funds to the payee occur in real time or near-real time on as near to a 24-hour and seven-day (24/7) basis as possible.
'In today's increasingly mobile digital economy, Americans require a world-class payment system where they can safely and securely pay anyone anywhere at any time.'
Many countries around the world have had government mandates that require the implementation of fast payment services. However,
The Clearing House operates on a core
About RTP
There are advantages of the network that makes the RTP network different from other payment networks in the
The sender knows the payment has been sent, received and posted. The receiver also has the same visibility into the transaction-literally within seconds. The average RTP transaction now is taking less than three seconds from beginning to end, and that is complete settlement across the transaction. So it truly is a real-time network, allowing the payer to pay exactly how much they want when they want to pay it. The challenge of many other payment networks is the lack of visibility, which leaves questions such as: Has it come out of my account? The RTP transaction also carries not only the payment but the data associated with that payment. The information that goes back and forth is referred to as conversational commerce.
Trends and Use Cases
By the end of February, TCH had 100 financial institutions established on the network, with many more than that in the development queue that will be coming live over the next few months. Most of the FIs that are going live today happen through a technology partner relationship like Alacriti. The banks on the network now make up about 50% of the coverage across the DDA base. So 57% of the TCH accounts, both consumers and businesses, can at least receive an RTP transaction.
If you take into account those banks and credit unions, where they have the physical connectivity in place through a company, e.g., a core processor, then that number jumps from 57% to over 70%. These figures continue to escalate as more and more products are coming live on the network.
According to
TCH sees a lot of account to account based activity. For instance, moving money from your main bank account to a credit union account. On average, consumers own 5.3 accounts across all types of financial institutions, so RTP provides a huge advantage. Consumers want to know they can have access to their funds exactly where they want when they want in a matter of seconds.
TCH also sees a lot of gig economy type of volume increase over the last several months. For example, food delivery services companies like
TCH is experiencing a growing number of business to business based volume as well. The immediacy of the payment and the data that travels with it is really conducive to corporate types of use cases. For example, the treasurer of a large company can literally manage cash flow down to the second.
For wallet transactions like
Another application is payroll. Instead of the three-day window required for ACH, some major payroll companies like
Another trend that TCH has observed is a really dramatic increase in volume is around merchant funding. With sales receipts, a small business owner can access their funds immediately. This is even more important to companies on the weekend. Companies like Alibaba and Square are using the RTP network to increase the level of service they provide merchants by providing them with faster access to their cash. That's been extremely well received in that industry, and more and more companies are starting to leverage that capability, especially over the past year, when small businesses have been so cash-pressed.
Faster payments can also improve bill pay. TCH bank participants have gone live with leveraging RTP for bill pay. It has the potential of reinventing the way a bank-based bill pay works for consumers and billers alike. A biller can put a request for payment on the network, and that request can include both the request for the bill payment and the information relating to it. It tremendously improves the user experience, improves the way billers process payments, and makes it work better all around. In addition, payers need not incur a late payment fee when paying bills right when they are due because funds are not immediately credited.
Perhaps the most obvious potential use case is government payments. TCH did over 100 million in ACH payments over the last six or eight months, which involved many checks. If the money had shown up in accounts immediately, it would have been a much better consumer experience.
Network Selection
There are faster payments networks beyond TCH. For instance, speeding up ACH payments to go from multiple day to same day settlement. Same Day ACH has been encouraged by Nacha rules over the last several years, with the most recent rule expanding the Same Day ACH processing window by 2 hours. Since ACH has a ubiquitous reach, Same Day ACH raised the bar for the industry.
There are also card networks and push payment models offered by
The
The selection of networks is a good thing-having just one real-time payment option would lead to less innovation in this space. All of the available networks fill a need, especially when it comes to cross-border transactions and the need to reach across international borders to facilitate transactions. When choosing a network, financial institutions need to consider the most relevant networks to their potential use cases, needs, and the speed they offer. Rather than one network prevailing as best above all others, there will most likely be financial institutions and businesses figuring out which networks serve their needs and work with partners, such as Alacriti, to sort out the best option.
Strategy
Figuring out product strategy now is key. Banks and credit unions can typically go live with RTP in a couple of months. Consider questions such as: Do you want to offer services to your businesses? Do you want to update the way the loan process works? Do you want to do business to consumer type products? Have there been indicators that your customers would be interested in faster payments, such as an uptick in Same Day ACH transactions?
Do faster payments mean more fraud? To prevent fraud, TCH was designed from the beginning to make it the safest payments platform. It's not just about faster payments but also smarter and safer payments. One of the examples of this is making it a credit push model. A lot of fraud on other payment rails comes through the capability of funds pulled out of accounts. RTP doesn't allow that-the sender has to push the payments-you can't pull it. Already, banks and credit unions have been making inroads into validating and knowing their customers and their routines. These efforts carry over perfectly to the RTP world. The important thing with RTP is making sure that you're sending money to the right person and educating the end-user on the importance of doing so. In addition to that, TCH is deploying different types of fraud tools where they can provide information that a bank or credit union can plug into their systems to be able to analyze and improve on the backend. However, considering the volume, TCH has not seen a problem, and it's been going well so far.
In a perfect world, all organizations would have solutions ISO20022 data rich, built on distributed ledger technology. However, there's the existing infrastructure that's 40+ years old to contend with. To kick off your transformation strategy, start by going to the Faster Payments Playbook, a collaboration between
You can also get guidance from TCH's RTP Network Readiness Checklist, which is based upon what they've seen work for participants who are on the network now.
2021
In the webinar, the speakers weighed in on their expectations for 2021. The first thing that comes to mind for
'I would say the timeline for both consumers and businesses has been accelerated over the past year. Getting paid faster or being able to pay faster has become just an expected way of doing business. And if you can't get that service from your financial institutions, you could get it from a FinTech or some other third party. We were already moving in that direction as an economy where people expected immediate payments and they expected those payments to be interconnected with different systems or services they use-everything from the Netflixes of the world and Hulus, etc. to the ability to pay those immediately,'
In 2021, TCH plans to expand the capabilities of the network. They will be launching a document service where a small business owner can store an invoice and then link to that invoice within a request for payment. They are also launching tokenization capabilities within the RTP network.
Whatever path you choose, one thing is for sure, payments are getting faster and are the key to payments modernization.
(C) 2021 Electronic News Publishing, source
