While Payments are getting faster, the push for real-time payments (RTP) is happening in every facet of the ecosystem. We look at some of the causes and effects and what to expect in the coming year.
We’ve written previously about the benefits of real-time payments (RTP) but the US still has more work to do when it comes to facilitating faster payments. The payments industry is still largely operating through a batch process even with the push for faster payments in both B2C and B2B arenas. Earlier this year, PYMNTS.com estimated there could be as many as 56 real-time payment schemes either live or in progress by the end of 2020. We’ll look at the current state of faster payments—and where we could end up within the next year.
In looking at the term “faster payments”, one would be remiss not to clarify what that means, exactly. In many ways, payments are becoming increasingly faster already. In 2017, Nacha—The Electronic Payments Association® debuted Same Day ACH for debit payments. This launch added the debit capability to the already-existing credit payments option, allowing for faster bill payments and more accurate insights into account balances. In 2018, Same Day ACH enabled same-day settlements via three settlement windows.
Zelle, along with a number of other peer-to-peer (P2P) payment providers, have ushered in faster payments between people. These options enable settlement in seconds (or minutes) rather than several days. On the RTP front, The Clearing House (TCH) launched an RTP network in 2017 and in 2018, the Federal Reserve sought public comment regarding its own role in supporting faster payments in the US.
B2B has been slower to rise to the occasion, though it is ripe for a move toward faster, if not real-time, payments. The gig economy, along with other factors, is contributing to a push for RTP.
The gig economy is not new, though it has seen exponential growth over the past few years. Intuit reports that 34% of Americans participated in the gig economy in 2016, a number that is expected to hit 43% by next year. According to McKinsey, that equates to 68 million freelancers or self-employed individuals today. The gig economy is composed of traditional freelancers, gig marketplaces (i.e. Uber, Airbnb, etc.), self-employed individuals, and others that collect income outside of a traditional employer arrangement.
This economic shift supports a move toward Requests for Payment (RFPs) as the self-employed directly request payment for the projects on which they work. This would also be a move away from more traditional forms of bill and invoice payments like checks, cash, wire and ACH.
It reframes the way both consumers and businesses look at bill payments, which are currently a clunky process. Consumers are familiar with this impaired process where they are often required to sign up for a third party bill payment service to view and pay bills online. Even with online bill payment as a possibility, the process of matching payments to invoices is convoluted. Alternatively, RFP can streamline this fractured process by linking payments directly to the request.
While paper-based payments still rule in the world of insurance (Fiserv reports that 62% of policyholders received a paper check for a claim in 2017), there is an increasing demand for speedy payouts—and a more secure, cost-effective way to facilitate payouts on the part of insurance companies. Digital payments that can be sent and settled within minutes (rather than days) are in increasing demand for the insurance space, especially in emergency situations.
Digital disbursements are less costly than paper-based ones, which require check processing and mailing. RTP, or even faster digital payments, offer more value to customers and an inexpensive alternative for insurance companies.
Late last year, Mastercard released a market intelligence report on real-time payments and the modernization of bank account-based payments. While noting that RTP benefits all members of the payments ecosystem, it also highlighted the special benefits for banks. Enhanced data/messaging capabilities, immediate funds availability, and better security are top considerations. According to the report, 85% of worldwide banks trust that real-time payments are the bedrock for growth and innovation. These benefits translate to:
While RTP is still evolving, other means of speeding of payments are in motion. Both banks and fintechs are making strides in the move toward faster payments. As the economy ebbs and flows, influenced by the gig economy and other variables, we will see a continued push for RTP. Banks should consider the numerous benefits of RTP and prepare internal systems and processes to accommodate new systems and requirements. While revenue uplift and cost reduction are compelling cases for RTP, a streamlined customer experience is a worthy objective as well.