The development of real-time payments in the US
Whether ordering a book online or hailing a cab through an app, the demand for a quick and seamless service has infiltrated almost every aspect of our day-to-day lives. Instant is the new expectation – and payments are no exception.
When it comes to payments, a sea-change is underway in the US, where a series of updates to existing payment rails, as well as the introduction of new, real-time solutions and overlay services, looks set to revolutionise payments as we know them.
Among the biggest developments of the past five years has been the launch of the Clearing House’s real-time payments network. Known as RTP, the service provides real-time gross settlement on a 24/7/365 operating model. By enabling payments to be securely settled within two to three seconds – a vast improvement compared to legacy rails – individuals and businesses are able to make and receive payments in real-time.
Already, a number of innovative use cases have emerged, ranging from enhanced client experience to improved liquidity management. A number of value-add features, such as request for payment messaging capabilities, are also pushing US payments to the next level.
The advent of electronic billing
One of the immediately available features of RTP is the request for payment messaging capability, which supports complex digital commerce services with integrated messaging that allows the issuing and paying of e-invoices and e-bills.
In the US, the potential benefits of this cannot be ignored. Today, around 15 billion bills are paid each year – many of which are handled by inefficient, paper-based and manual processes. This comes with a great many downsides for billers, who have to cover the cost of producing and sending physical bills, deal with cumbersome reconciliation processes and hold large cash reserves to operate in the fragmented bill market.
Fortunately, the tide is beginning to turn. Solutions that leverage the request for payment messaging functionality are beginning to emerge – and have the potential to redefine billing in the US. One such example of this is real-time electronic billing over the RTP network.
Currently, when many US corporations want to present a bill to a customer, they would have to send it via mail and be paid via cheque, leading to long settlement times. By leveraging request for payment capabilities, the company can send a bill electronically over the RTP network.
Once sent electronically, the customer’s bank will reach out to the customer to inform them they have been sent a bill. The customer will then choose to approve or reject the payment using their online banking services. If they approve the payment, the requested funds will arrive in the billers account almost instantly. The biller will then receive a message to inform them the payment was successful – and their internal billing system is instantly updated.
This provides the corporation with a payment that is both transparent and irrevocable, as well as a seamless end-to-end experience from bill-presentment to reconciliation.
By the end of 2021, the RTP network aims to have 40% of consumer accounts digitally enabled with this e-bill presentment capability – the point at which The Clearing House believes it will reach the “critical mass” mark.
An evolving landscape
Today’s 24/7/365 economy is continuously driving innovation in the real-time payments space and soon, RTP will no longer be the only instant payment capability in the US, with the Federal Reserve (Fed) launching its FedNow Service in 2023. The Fed is working with leading banks in the real-time payments space to support the development, testing and adoption of the FedNow Service.
As real-time payments become an increasing reality, innovative technologies are also emerging to solve remaining inefficiencies. For example, some digital payment network providers are working with banks to develop a secure and simple system to use an individual’s cell phone number or email address (rather than their routing and account number) to send and receive e-bills.
Amid these changes, it is important that banks are able to support both RTP and FedNow, as well as provide additional support through third-party partnerships, if they are to meet client expectations for instant, interoperable services. As a result, banks should look to build a comprehensive payment offering to ensure they – and their clients – are prepared for the new, real-time world.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
About the author
Carl Slabicki is head of strategic payment solutions at BNY Mellon Treasury Services.
He is also a member of the board of directors for Nacha and the US Faster Payments Council.