With faster payments, speed catches all the headlines – but
the value beyond immediacy deserves real talk on real-time
payments. Behind the speed, the faster payments rails carry
data and details as well as messaging abilities. According
to Colleen Taylor, Executive Vice President, New Payment
Flows at Mastercard, faster payments are fighting 40 years
of inertia the U.S. payments infrastructure, plus half a
dozen powerful myths and misconceptions that must be
dispelled before real-time payments adoption can begin to
ramp up. On top of that, there are no mandates pushing U.S.
consumers, businesses and financial institutions to hurry up
and get on the same page about it, as there have been in
Real-time payments are thus in the very early stages of
adoption here in the U.S. However, Taylor and Mercator
experts agree that 2019 is the year to focus attention on
adoption. The U.S. has a sophisticated payments environment
already in place, Taylor says, so once a few major ecosystem
players begin to leverage real-time payments, adoptions
tipping point will be set in motion.
The Market Today
As a general statement, payments are moving faster. They are
progressing from taking days to taking hours, minutes, or
even seconds. This is helping to drive increased
accessibility of money movement and moving toward an
always-on, 24/7 environment, which is what today’s consumers
But to consider the ancillary benefits of real time payments
as an afterthought would be a mistake. Real time payments
come with real time data – for consumers, this might be a
simple payment confirmation ‘your obligation here is
fulfilled.’ But for businesses, context is more critical. In
order to offer context today, businesses send a payment
transaction typically followed by a separate message (like
email) to explain what the payment is covering. Real time
payments allow businesses (and consumers) to pair
transactions with context – and ISO 20022 is a messaging
standard to assist that communication. Now payments can
travel with an associated message about what they’re for
immediately placing each transaction within its proper
context – and can help increase major savings in time,
money, and hassle.
It’s important to note that faster payments and real-time
payments are not exactly the same thing. Understanding this
distinction and other terminology around real-time and
faster payments will make for a more productive conversation
in this “year of adoption.” Here’s a quick rundown of the
tools you’ll need to talk about the changes ahead.
Faster payment: A monetary transaction sent and
received more quickly than it has been in the past. For
example, same-day ACH allows funds to be received in a
single day as opposed to Legacy ACH, which could take
Real-time payment: A sub-set of faster payments,
these monetary transactions are typically sent and received
within seconds and come with supporting details that provide
greater transaction transparency than in the past. The funds
can be sent or received any time, any day. The payee has
immediate access to use those funds, even though settlement
of the bond between financial institutions does not take
place in real time.
Irrevocable: Describing both faster payments in
general and real-time payments specifically, irrevocable
payments typically cannot be recalled by the payer once the
payee has received them, which is why the payee can go ahead
and use those funds instantly with confidence.
Ubiquity: Real-time payments only succeed if
they’re easily accessible by all or nearly all consumers and
Social tokens: Identifiers such as a mobile number
of an email address used as a proxy or token for an account
credential, associated with a bank account number in the
financial institution’s database.
ISO 20022: A messaging standard that many real-time
payment solutions around the world have adopted or are
working to adopt because it creates a common approach to
providing payment information to accompany transactions.
Request for payment: Means by which the payee can
send the payer a message requesting payment – for example, a
biller such as an electrical company asking a customer to
pay their monthly bill. The customer can then respond by
pushing funds from their account to the utility.
Also worth noting in terms of context is the unique spread
of choices available to consumers and businesses in the U.S.
market. Without a government mandate for change, ecosystem
players like banks and businesses need to develop their own
modernization strategies for their institutions and
customers. Because the U.S. is a free market, private
industry covers the approach to faster payments, and there
are a lot of different solutions in the market::.
ACH: The system provided through the government is
not real-time, per se, but it is expanding its capability
through same-day ACH to deliver transactions more quickly,
Network debit push capabilities: Functions such as
Mastercard Send® which use the existing debit card networks
infrastructure to deliver to almost anyone with a card
Zelle and similar:Network that
facilitates person-to-person and business-to-consumer
transactions through real-time account-to-account transfers.
The Clearing House (TCH): Created a real-time
payments infrastructure (RTP), powered by Mastercard’s
Vocalink, that’s in use today by some of the largest banks
in the U.S.
Federal Reserve (maybe):The Federal
Reserve is still evaluating whether to participate by
offering settlement and liquidity tools to facilitate
real-time payments, as well as operating a real-time payment
service of its own.
Mastercard powers one of the big solutions that Taylor
believes will move the needle this year: they’re the engine
behind The Clearing House’s Real Time Payments platform.
They’re also introducing Bill Pay Exchange this year, a bill
payment network that sits atop the real-time rails. Taylor
says this has the potential to revolutionize the way
consumers pay and interact with billers.
This is in keeping with Mastercard’s broader stated goals
around payments application strategy: ‘to solve customer
needs through applications which offer payment choice, data
richness, and dynamic messaging.’ The idea being to put
consumer choice at the center of product vision.
So far, TCH is connected to about half of all bank accounts
in the U.S. Mercator analysts predict that this number will
soar from 50 percent to 80 percent by the end of 2019. Once
that happens, banks that are connected to RTP can (and must)
start building on their new ability to initiate faster
payments instantly by creating the capability to receive on
behalf of their clients. By 2020, we predict that request
for pay functions will likely begin to generate significant
volume as well.
The Market Tomorrow
To get from here to there, a few things need to happen.
First, some common myths and misconceptions that Taylor says
must be corrected before users will be ready to move forward
Real-time payments will cannibalize existing card base
volume.Cards are only a very
small percentage of business-to-business (B2B) flows.
Real-time payments are rather moving in to replace paper
checks – a welcome and overdue transformation. It’s
worth noting that, in geographies where real-time
payments have already been introduced, consumer card use
has not declined. As with electronic payments, this move
is about creating consumer choice, not cannibalizing
existing methods and products. Well, except for checks.
All faster payments are equally fast.While
the various faster payment systems may look the same
externally, they bring different liquidity positions and
different dimensions in terms of notification, clearing,
or settlement. The variety of solutions available will
help enable real-time payments to meet the needs of many
different types of customers with all their diverse
Faster payments means faster fraud.Increased
speed creates different types of fraud risk. This is a
reality for any new payment method or infrastructure.
Real-time payments may actually be in a better position
than many due to the richer data that comes with
transactions, which can help to better mitigate risk.
You can achieve the benefits of real-time payments without
moving to ISO 20022.
ISO20022 is becoming the industry standard. The ISO20022 is
the most robust international framework enabling security,
flexibility, and scalability – beyond payment messages RTP
uniquely supports rich non-payment messages (e.g. request
Real-time payments increase the risk of bank
opposite, real-time payments actually offer banks the
opportunity to create more compelling value propositions
for their customers and to innovate, while also creating
a slight barrier to entry from other parts of the
ecosystem. Banks that are willing to make the change and
drive new solutions for customer pain points can help
manage the risk of disintermediation.
The case for real-time payments is only a regulatory
compliance one.The benefits of
real-time payments go far beyond marking off a
government checkbox. Although some markets have made it
a mandate, the private sector approach may work best in
the U.S. even if it means slower adoption, because banks
are now free to take advantage of new capabilities in
order to have the flexibility and features necessary to
Taylor said it’s important to accept that change won’t
happen overnight. Real-time payments enthusiasts must be
patient. Again, RTP is fighting decades of inertia in the
U.S. market. Participation of early adopters, especially
small- and medium-sized banks, will help drive greater
adoption across the board.
Connectivity from processors will prove extremely important
when it comes to selling RTP among small and medium
financial institutions. These smaller institutions need
larger players to provide the core systems that enable them
to provide this capability to customers.
In addition, greater clarity from the Federal Reserve should
help small and medium banks that are on the fence make up
their minds. Today, there is some hesitancy because they
don’t know how they will gain access to the platform, or
even if they’ll be able to. Once the Federal Reserve decides
what role it wants to play, this should help inspire some
confidence and set the ball rolling on RTP adoption.
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*Actual posting times depend on the receiving financial