Real-time payments are taking center stage in 2022, according to Cornerstone Advisors’ “What’s Going on in Banking” report, with three in ten banks and a quarter of credit unions saying they plan to implement real-time payments in 2022. These numbers represent a 120 percent increase over the number of banks that have already rolled out RTP and 50 percent growth for credit unions. Still, many of the institutions planning to launch in 2022 have yet to determine their strategy but are opening the door for vendors with real-time payment solutions.
As RTP® adoption continues to accelerate and with the Federal Reserve’s FedNow Service set to launch in 2023, financial institutions would benefit from educating themselves about real-time payments and prioritizing a strategic approach to planning and adoption.
Toward that end, NEACH has drawn on industry experts to provide NEACH members and the industry with an overview of the current landscape, along with practical considerations for strategic planning. Discussions during December’s Future of Payments Symposium gave a glimpse into expected developments in the year ahead.
What is the RTP® Network?
As a reminder, the RTP® network from The Clearing House (TCH) is a new credit-push payments rail that all federally insured U.S. depository institutions can use for payments innovation. According to TCH's website, the network serves as a platform for innovation, allowing financial institutions to deliver new products and services to their customers. Financial institutions can integrate into the RTP network directly through Third-Party Service Providers, Bankers' Banks, and Corporate Credit Unions.
“The system is what you want a real-time system to be,” explains Lee Kyriacou, VP of Real-Time Payments for The Clearing House. “It always gives you payments status. It always gives you availability of funds. And it’s always on—24-7. And we’re ready to go global—not now, but in the next few years.”
What are the Top Use Cases?
As the volume of the RTP continues to grow, so does the volume and number of transactions. According to TCH, Q421 closed with 37.8 million transactions for $15.7 billion and 13% volume growth over the previous quarter. And as of December 2021, there were 1,000 plus routing and transit numbers (RTN) listed in the RTP Routing Table.
Currently, the top receive use cases include:
- Wallets like PayPal and Venmo
- Merchant funding through services including Block, formerly Square, and Elavon
- Account-to-Account (A2A) transfers within and between banks including Chase, HSBC and PNC
- Payroll through companies like PayChex and DailyPay
- Driver payments with GrubHub and Uber
- Insurance claim payments through companies like Allstate®.
“Consumers and small businesses choose to move those funds instantly all day long,” says Elspeth Bloodgood, Senior Payments Manager at Jack Henry & Associates. "Those three entities together PayPal, Venmo, Square, are the largest applications on the network. And consumers and small businesses pay for this privilege.”
How Can I Plan for RTP®?
With customers/members demanding more immediacy in their payments, FIs are getting serious about implementing RTP and are wrapping it into strategic plans. Once you get to that point and identify the most relevant use cases to meet your customers’ and members’ needs, you have some simple decisions to make, says Kyriacou.
- Are you going to connect through a third-party service provider, or are you going to try to connect directly?
- Do you want to receive only or receive and send RTP payments? (Almost all banks start with receive-only because there's less work on the receive side than on the send side in terms of messaging and the ability to make downstream systems work right.)
- What agreements are there to sign?
- When do you want to launch?
- What additional information do you need both internally and externally to plan strategically?
Kyriacou adds that TCH has an express onboarding process. You can be on the RTP network in a couple of weeks. Typically, if you have a relationship with a third-party service provider that’s already connected to the network, they can be up and running in very little time after providing the required information.
What is the FedNow(SM) Service?
Another real-time payments offering, FedNow will launch from the Federal Reserve in 2023, and offers another solution for FIs to increase the immediacy of payments.
“The FedNow Service is a way for financial institutions of every size and in every U.S. community to provide safe and efficient instant payment services around the clock, 365 days a year,” explained Federal Reserve Bank Account Executive Tom Goodman. “It will be offered to all financial institutions to enable businesses and individuals to send and receive instant payments conveniently.”
What are the Top Use Case Opportunities for the FedNow Service?
The FedNow Service will support A2A and Consumer-to-Business (C2B) Bill Pay use cases at the initial launch. According to the FedNow use case series, A2A opportunities include:
- Me-to-Me accounts (Individuals can instantly transfer money between accounts at different financial institutions.)
- Prepaid cards (Individuals can reload cards without the wait.)
- Mobile wallet funding/defunding (Individuals can instantly fund or cash out cards.)
- Investment account management (Individuals can move funds from their FI to their brokerage firm in real-time.)
- Corporate cash pulling. (Corporations can consolidate funds into a single account for payroll or other purposes.)
C2B opportunities, as noted in the FedNow use case series, include:
- Paying bills (Individuals and corporations can pay bills instantly, which can help individuals and companies avoid late fees and better manage cash flow.)
- E-Invoicing (Billers can send a request for payment, which will include applicable remittance details that facilitates posting the transaction to their customers through the FedNow Service.)
The Fed will continue developing additional services to better support various use cases to meet consumer and business market needs.
How Can I Prepare for the FedNow Service?
Goodman suggests these resources and opportunities for engagement to help your organization prepare:
- Sign-up for FedNow Service emails.
- Join the FedNow Community.
- Visit FedNowExplorer.org.
- Learn about the Ecosystem Accelerator Group.
You can also download the FedNow Service Readiness Guide here. The Guide includes insights on how the service will work, questions to consider, and ideas for maximizing the opportunities inherent in FedNow. The Fed will update this resource based on new developments and product enhancements over time.
Also important to note, collaboration across the industry is a cornerstone to the successful planning and preparation for RTP and FedNow, whether that means partnering with outside vendors or FinTechs, working with various departments in your organization, and/or drawing on available expertise industrywide.
“Collaboration across the entire ecosystem is needed to enable and achieve the benefits of instant payments,” Goodman says. “Banks, credit unions, bankers’ banks, corporate credit unions, service providers, consumers, and businesses will all be part of this evolution. In addition,” he adds, “your vendors that provide your core banking applications, your mobile bank applications, your online banking applications, your bill pay applications, your accounting applications, and others will all be part of this transition."
As your strategic partner, NEACH continues to seek out collaborative opportunities with and for its members with the broader financial services industry and local and national FinTech organizations.
For questions about instant payments or help in creating a faster payments strategy, contact NEACH by phone at 781-321-1011 or via email at email@example.com.
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.