By W.B. King
While more commonly adopted in other countries, real-time payments have yet to catch fire in the U.S. market. When adoption rates might increase was the focus of “The Road to Real-Time Payments: How Fast is Fast Enough?” panel during CUNA’s 2021 virtual Governmental Affairs Conference.
“This topic has been a fairly big source of debate and interest for some time now and I think we are discussing it at a really interesting juncture with the effects of the pandemic over the last year and other developments in the space,” said panel moderator Glen Sarvady, managing principal at 154 Advisors. The company helps financial institutions, merchants and ISOs traverse payment landscapes through data-driven analysis and strategy formulation.
“Real-time payments have been a long time coming in the U.S.,” he added. “The rubber is hitting the road.”
Joining Sarvady for the discussion was Federal Reserve Bank of Chicago’s Customer Relations and Support Office Vice President and National Account Director, Daniel Gonzalez; Catalyst Corporate Credit Union’s Senior Vice President and COO, Brad Ganey; and The Clearing House’s Senior Vice President of Products and Strategy, Steven Ledford.
Among real-time, twenty-four seven payment platforms discussed was the Federal Reserve’s “FedNow Instant Payment” and The Clearing House’s “RTP Network.” The former is scheduled to launch in 2023, and the latter rolled out in 2017.
“We are narrowing the window when we expect this service to come to market,” said Gonzalez, adding that a pilot consisting of 110 participants is ongoing. “We have a broad swath of financial institutions - large and small banks, national banks, community banks as well as credit unions.”
According to Gonzalez, one of the benefits of the pilot program will be the ability to make the service “very easy and accessible” for credit unions of all sizes to connect to the FedNow network. Among pilot participants is Catalyst Corporate Credit Union.
“Certainly a major focus is faster payments, including real-time payments and FedNow’s solution,” said Ganey. “There has been settle-down from 2020, as well as analysis of impact on payments overall. I think real-time payments are on a lot of people’s radar for 2021.”
Being Wrong Can be a Good Thing
While The Clearing House was an early entrant to the real-time payments space, Ledford conceded that how the RTP Network was conceived to be utilized and how it actually has been used is a different story. In many cases, use cases were dictated by the innovation of the end users.
“I am happy to say that we were so dead wrong when we launched the network on how it was going to be used in the early days,” said Ledford. “We did think it would prominently be a lot of B2B transactions, but what’s interesting is that there have been applications we never thought that would be that big, but the thing to keep in mind is that there are more consumers than businesses.”
Ledford said the fastest growing application is simply “paying people.” Another uptick has been realized with employers who want to accelerate payroll payments to employees. Pay-on-demand is also a growing segment as well as merchants getting settlements from their processors for receipts taken in.
“We are finding that these kinds of applications where that ability to immediately send money or getting money into the payroll account are really the fastest growing applications right now,” noted Ledford. “We are also seeing things that people probably never thought of. At the end of a typical mortgage closing, for example, everyone is swapping checks—but why swap checks when you can make the money happen immediately, especially if you are doing a virtual closing.”
A Proactive Credit Union Approach
While trying to estimate interest and potential adoption rates of real-time payment platforms is difficult, there are market indicators. Ganey explained that last May the credit union’s subsidiary, Catalyst Corporate, acquired the Georgia-based Aptys Solutions, a leading provider of real-time processing and electronic payments solutions for correspondent service providers. Aptys’ product set, he noted, will enable Catalyst Corporate to aligned with faster, real-time and instant payment solutions, including mobile, P2P and P2B.
“We recently announced our P2P product and part of that was really a soft launch — intended to be a micro event. We were just trying to get a small group of credit unions together to talk about what we are doing in the space,” he said. “We had four times the attendance we were expecting, so that’s certainly a positive. We did a survey asking credit unions: ‘What is your intent for 2021—do you intend to launch a faster payment solution?’ And 73% said ‘yes.’”
Since not all credit unions are willing or able to adopt a full suite of real-time payment services, both FedNow and The Clearing House offer a “receiver-only” mode. Sarvady asked Gonzalez if this represents a “toe in the water” for financial institutions or a starting point on the way to full implementation.
“Receive-only is what we heard is the easier lift. This provides the ability for members to receive payments and participate in this payment scheme,” said Gonzalez. “The ideal, of course, would be to originate those payments on behalf of members, but that takes additional interfaces. We are going to give both options.”
Ledford added that be it payroll, Pad Thai or pizza delivery orders, the pandemic forced the need for immediate payments to be processed at greater numbers, which may signal a sea change for the U.S. market.
“We are not saying use RTP for this or that — folks are finding ways of using it,” he said. “And once folks find out how convenient electronic payments are, they are not going back.”