Time for Real-Time Payments: Banks Embracing the Payments Revolution
By Carl Slabicki, Director, Immediate Payments, BNY Mellon Treasury Services
Significant change is under way in the world of payments, with new, client-centric capabilities transforming how we transact. Carl Slabicki discusses how the real-time landscape is evolving, and how banks and the wider industry can make real-time payments a reality on both the local and global stage.
Real-time payments are increasingly becoming a global norm for domestic transactions. Over 35 countries have now adopted – or are transitioning to – some form of faster payment scheme . Regulation, outdated payment systems, the influx of fintechs entering the market, and growing client demand are driving this change, with the emergence of seamless peer-to-peer payments increasingly influencing what is expected of the corporate payment experience.
As a result, banks are committed to not only providing enhanced transaction capabilities, but also collaborating to ensure the most effective services can be provided to clients – both in the short term, but also in the future, as they look to apply real-time functionality to cross-border payments.
Realising real time in the US
The launch of US Real-Time Payments (RTP) in November 2017, which saw BNY Mellon processing the first ever transaction, has been a watershed moment .
Before this, there had not been a significant overhaul of clearing and settlement systems in the US since the introduction of the Automated Clearing House (ACH) four decades ago; businesses and consumers had been somewhat limited in terms of experience. With the global payments landscape evolving faster than ever before, with threats of competition from non-banks, and with real consumer need, The Clearing House (TCH) and its member banks recognised that a radical change was required to continue to offer real value in the transaction space.
The RTP concept was born in 2014 and, recognising the opportunity that it could bring, BNY Mellon has been heavily involved in the initiative since its inception, playing an active role in shaping the operating rules and best practices in order to effectively represent the interests and needs of clients.
RTP delivers a 24/7/365 solution that clears and settles payments within seconds and provides real-time transparency to both parties. The improved visibility provides huge benefit to clients in terms of cash management and reconciliation. In fact, the introduction of real-time payments is altering the very culture of US payments, changing the dynamics of how clients and banks interact and creating a shift in terms of how and when consumers and businesses choose to transact, with payments no longer restricted to ‘business hours’.
What’s more, the flexibility of RTP will allow it to communicate and inter-operate with other solutions, thereby further enhancing transactions. For example, by connecting with directory services, clients can make payments that utilise non-sensitive identifiers (i.e., tokens), such as an email address or mobile phone number, and RTP will enable them to settle in real time. Stitching together RTP with such solutions allows banks to provide an improved, more comprehensive payments experience to clients – including enriched connectivity through the use of application programming interfaces (APIs), which can help integrate payment messages and status with other key enterprise IT such as order fulfilment systems and CRM platforms.
RTP does more than transform transactions, however. The drive to revolutionise payments has sparked unprecedented collaboration amongst banks in the US. From the outset of the initiative, banks have been working in partnership with other banks, regulators, industry groups and fintechs in order to help ensure the most effective RTP design and outcome could be delivered to clients.
A key part of this is the effort to work towards ubiquity. The aim is for every account at every US financial institution (FI) to have RTP access by 2020. With over 10,000 active FIs in the US, this is a huge undertaking. Seven of the largest US banks are currently on the network, with the remaining top 20 expected to connect directly to the RTP network imminently. There is also traction across other tiers of the US banking sector – driven by increasing advocacy across the finance sector, and a growing number of opportunities to connect to RTP. A recent report indicated that 50% of US commercial banks plan to increase their IT spending in 2018 to facilitate RTP . Further momentum is expected to build as banks that have held back now face growing pressure from clients to deliver new capabilities – and increasing competition from those who have implemented RTP and are able to offer significant added value to clients.
Given the benefits of and demand for RTP, FIs need to develop a strategy regarding their approach to real-time payments if they are to meet evolving client expectations. Of course, investing in a new payments infrastructure and connecting directly to the RTP network can present a significant challenge, and may be beyond the reach of many FIs. But outsourcing some or all of the capabilities by partnering with a correspondent bank can considerably reduce the level of investment required, as well as the time to market, thereby enabling institutions to modernise their payment solutions efficiently and effectively, and offer a cutting-edge transaction experience to end-clients.