The United States is moving closer to a competitive real-time payments (RTP) system and that is just the beginning of the innovations coming our way, Jessica Cheney believes.
Ms. Cheney is the vice president of product management and strategic solutions at Bottomline, a company automating and digitizing business payments and processes. She said because payments are not regulated like they are in regions like the European Union (with PSD2), changes can come slower stateside.
That is changing as the Federal Reserve Faster Payments Task Force has encouraged the industry to innovate in a free market fashion. Combine the efforts of Venmo, Zelle and PayPal with the surge in demand for RTP since the onset of the COVID-19 pandemic and there is fertile ground for growth.
“Since then consumer expectation around the use of RTP because of the use of Zelle and Venmo have really exploded,” Ms. Cheney said. “On top of that, all of the 2020 impacts have led to even more focus and acceleration on payments innovation, the need for even more contactless payments and the sensitivity around the speed of a payment. It’s all led to a lot of increased pressure and acceleration around getting RTP in the mainstream in the U.S.”
Steps were underway before the pandemic, as The Clearing House’s RTP network launched in 2017. Owned by many of the world’s largest commercial banks, The Clearing House’s involvement was the first solution that coalesced not private industry seeking to upend the status quo, but the status quo itself.
“RTP growth has been exponential,” Ms.Cheney said, adding in the past year it has outpaced most expectations.
Credit the banks’ interest for putting the foot on the gas, she said. Then came regional and community banks, showing the interest went beyond The Clearing House ownership.
The Fed also decided it would be good to field a competitive offering to the Clearing House’s RTP. The only problem is Fed Now is projected to be fully operational in 2023 and who knows what the market will look like then.
“A lot of people feel that will be too little too late,” Ms. Cheney said. “Our stance is in order for Fed Now to actually be impactful on continuing the adoption of RTP it’s going to need to be ubiquitous with what has already been established with RTP from The Clearing House.”
One of the best aspects of Zelle’s system is they have developed a tokenized process for delivering RTP that doesn’t require the receiver to share their information with the sender, Ms. Cheney said. It works on Venmo too. Fed Now needs the same capability, she added.
While faster progress was being seen before COVID-19, the pandemic also helped push things along, Ms. Cheney said. A lessening desire for hard currency and the need to get money to people fast, such as through PPP payments, highlighted the value in a quick delivery system.
“They found a need in the market and found a way to make RTP fit that need,” Ms. Cheney said.
Strong RTP systems address more issues than quick payments, Ms. Cheney added. They can easily provide more remittance information and improve reconciliation. That allows communication to happen in the same rail as payments whereas before questions around accuracy and other issues were addressed outside of the banking channels
“That solved another pain point that our traditional payments in the U.S. have had,” Ms. Cheney said.
This increased attention on RTP will have a spillover affect on other areas of financial services, Ms. Cheney believes, beginning with added attention on receivables.
“The company as well as the banks and cash management industry in general are focusing on a complete picture of improving the cash cycle itself and putting all of the tools together that actually aid in that,” she explained. “This is a global phenomenon. The need and consumer expectation for the instant transfer of value is across the board.
“How will we support the U.S. version of open banking? How will we support any other type of money transfer that might come up?
“The consumer expectation that has led us to the innovation that is RTP is going to continue to drive even faster innovations in the payments industry now.”