THE PROMISE OF REAL-TIME PAYMENTS is tantalizing for corporates and banks alike. Seamless, immediate, and frictionless client experiences, improved treasury efficiency, and the potential for reduced fraud exposure are among the tangible benefits of this new payment rail. But what is perhaps the most compelling value proposition for banks, corporates, and government entities alike is the advent of new business models that this infrastructure is likely to usher into being.
Although faster, smarter transactions are delivering on these promises today, widespread adoption is slower than expected. The future of real-time payments remains bright. However, only a concerted effort by all stakeholders will lead to truly material adoption.
A HIGHLY ADVANCED PAYMENTS PLATFORM
Although it’s a late entrant into the global real-time payments field, the RTP (Real-Time Payments) platform from The Clearing House (TCH) is the first new payments system in the U.S. in 40 years and continues to be one of the most sophisticated systems globally.
The primary reason for the platform’s technical sophistication is twofold. First, TCH’s RTP is not merely a clearing and settlement platform; it also provides for the exchange of comprehensive data and non-payment messages. Access to “rich” transaction data gives corporates the potential to achieve deeper insights into cash flows, enabling improved decision-making.
Second, having this data readily available makes it possible to achieve straight-through processing along with enhanced posting and reconciliation, increasing efficiencies in exception management and reducing back-office costs.
Another distinguishing factor of the U.S. approach has been the partnership between private sector enterprises that has developed to help modernize the overall ecosystem in the absence of a centrally mandated approach. Although the RTP platform and Zelle have been launched as bank-led initiatives, both card networks and FinTech companies (wallet-based models) have also launched a number of near-real-time solutions. Not only do these schemes offer a strong value proposition, they are being developed to enable interoperability with the goal of driving ubiquity.
However, despite encouraging “coopetition” and spurring development, some believe that the lack of a central mandate has had the unanticipated effect of causing some banks to take a wait-and-see approach before committing to one of the available real-time payments approaches.
CORPORATES SEE POTENTIAL IN REAL-TIME PAYMENTS
Up to this point, corporate adoption of real-time payments has been modest, which can be attributed to a number of factors, including:
• An overall lack of ubiquity (the number of participating banks that can send and receive real-time payments is limited)
• Low awareness and education related to the new payment rail
• Uncertainty surrounding which real-time payment system will ultimately be successful
• A low allowable limit per transaction ($25,000 for TCH’s RTP system)
• Investment required to modify technology architecture, operational processes and liquidity management to support item versus batch-oriented processing
To further encourage adoption, many of the largest enterprise resource planning providers are working to provide plug-and-play solutions that will facilitate corporate back-end financial payments, settlements, and reconciliation processes.
For corporates, moving from batch payments to a real-time process using application program interface technology makes good business sense. Beyond speed, real-time payment systems offer important potential advantages, such as driving treasury efficiency, enabling more-effective use of cash flows, and minimizing exposure to fraud. Because such payments dramatically shorten the time frame for recognizing receivables, they in essence speed the flow of commerce and straight-through reconciliation, making it easier to access much needed liquidity and achieve better working capital management.
WHAT’S COMING NEXT
While adoption has been modest thus far, the encouraging news is that the banking industry expects that approximately 50% of banks in the U.S. will be connected to RTP by the end of 2018. Reaching this threshold should further encourage corporates to take advantage of the tremendous benefits to be gained by investing in real-time payments.
To help ensure this happens, the banking industry as a whole needs to do more to educate corporates on RTP’s value proposition and the potential applications that address corporate treasury’s key pain points, such as accounts payable, accounts receivable, customer service, supplier relations, and new business development. In addition to creating a simpler payments experience, banks must address the confusion in the market head-on and create forums for dialogue, education, and advocacy.
To drive maximum value for the entire industry, it is vitally important that banks explore participation with both commercial and consumer transactions because RTP has applicability for both use cases. The true power of RTP can be realized only if retail and commercial experiences are built in a cohesive and synergistic fashion. Doing so will present significant new business opportunities for technology providers that can play a critical role by offering turnkey solutions to both banks and corporates.
Regulators and central bank authorities can further help expedite market adoption by creating best practices and guidelines to ensure transparency. By continuing to support existing schemes, they can be true catalysts to help drive ubiquity. Perhaps most persuasive of all would be for the federal government to contribute a material use case to help usher in a wave of adoption. In markets like the U.K., for instance, tax payments have significantly spurred adoption. Such an example in the U.S. could demonstrate ecosystem value, helping to highlight the importance of marketplace-wide action.
BANKS TAKE A LEADERSHIP ROLE
With the investment and launch of the TCH RTP platform, banks are in a unique position to drive adoption and support continued innovation in the payments space. Whether delivering value directly or through multiple networks, banks are well placed to lead this change. The banking industry has provided tremendous leadership in bringing real-time payments forward in the U.S. while helping to develop a marketplace for the future.
Citi, in particular, has taken a leading role in developing and launching the TCH RTP platform that has made real-time payments possible in the U.S. In addition to the TCH initiative in the U.S., 29 countries offer real-time payments around the world. Citi is a direct clearing member in 17 of those international markets and has been facilitating real-time payments for many years. The bank is utilizing its considerable experience to support RTP in the U.S. and is committed to delivering a truly global and ubiquitous payment experience.