August 2, 2019
TABLE OF CONTENTS
Gone are the days where brewing coffee consumes more than 10 minutes of our morning. Digital communication continues to become more accessible and instantaneous on a growing number of platforms, improving our quality of life through technological advancements. Beyond the mere instant gratification we receive when the processes that define both the menial and the substantive are simplified, developments in technology grant us the ability to better manage the present in order to plan for the future. Banking and the subsequent technologies that are advancing around it are no exception.
In their article titled Real-time Payments: Use Cases and Opportunities, Scott Harkey and Kara Ford of the Financial Services team at Levvel discuss the appeal of a faster payments system and explore the various flavors currently available in the U.S. Although we don’t expect the payments industry to revolutionize overnight, preemptive planning and positioning will in time result in tremendous opportunity.
Harkey and Ford explain that beyond B2B transactions, consumers are beginning to expect access to faster payments systems themselves, and rightfully so. There are sizeable benefits for the consumer who uses RTP or has access to the Zelle network. Ultimately, faster payments empower both small businesses and the consumer. This article functions dually as a means to unearth current issues with the monopoly of ACH on standard consumer payments while also offering a faster payments solution.
First, let’s address the gig economy. According to the Gig Economy Index, freelancers comprised 32.6% of the U.S. workforce in Q4 2018. By 2027, this number is expected to tip over to a majority share. Currently, however, only about half of these workers report being paid within a full week of completing a job. Studies show that as many as 85% of gig workers say they would increase their work if they could receive compensation more quickly. Yet, only 17% of freelancing platforms offer real-time funds transfer.
Access to the Zelle network would reduce frustration and encourage further participation for the nearly 57 million gig workers currently in the U.S. Moreover, access to faster payments would greatly strengthen the U.S. economy by increasing participation by those currently unemployed, but would potentially find newfound potential in jobs generally thought of as “side hustles,” such as freelancing, landscaping, or ride-sharing.
Demand for faster payments has not gone unnoticed. To increase staff retention and overall employee satisfaction, Uber and Lyft, both large scale gig platforms, have built internal payout systems, which enable their drivers to access instant funds up to five times per day.
Now, to address the traditional economy. Both small businesses and their employees are experiencing losses because of the limitations of the ACH rail. From the small business side, as Mary Meade explained in her article Zelle for Small Businesses—A Worthwhile Investment, “the real-time money movement that Zelle offers helps small businesses have more control over their finances.” Access to RTP would afford small business owners the ability to keep money longer before distributions to employees and suppliers, for example. Since many of such businesses don’t have ERP systems, this affordance is invaluable.
Extending this to the employee, with clear expectations for how and exactly when they will receive compensation, they as consumers are better able to manage their finances. For many people living paycheck to paycheck, their undeviating lack of knowledge regarding their current personal finances can result in serious financial loss. Many Americans without financial cushion end up taking payday loans when their paychecks won’t be available for several days. Usually, this is to cover immediate or time-sensitive bills, such as rent or electricity.
Research conducted by the Brookings Institution, Pew Charitable Trust, Center for Financial Services Innovation and others has illustrated that the increased prevalence of overdraft fees, high-cost small-dollar credit, and check cashing has cost Americans tens of billions of dollars. With RTP, consumers are afforded the opportunity to have consistent, complete knowledge about their finances whenever they choose, allowing them to be more responsible, informed consumers.
Tech should be used for good. At Levvel, we believe it can even change the world. RTP is just one example of many advancements that empower us as individuals, bring us together as a community, and generally improve the quality of life for those who have access to it. By simplifying and accelerating payments, the consumer gains a greater understanding of their financial standings and autonomy.
Financial Services Intern
Catherine Lori is a 2019 summer intern for Levvel's Financial Services Team. She currently is a rising junior at Davidson College studying mathematics and computer science. Hailing from Long Island, NY, Cat will spend her fall semester studying abroad in Copenhagen, Denmark.
Now that 2020 has arrived, the reality of RTP adoption has begun to outpace planning for implementation. The RTP conversation is no longer around should it be implemented, but rather of use cases that have been missed to better serve customers.
Throughout this series we'll provide answers to frequently asked questions surrounding product management for RTP, such as managing the product(s) long term, dealing with cannibalizing current products, and more.
TCH’s RTP adoption is rising. A recent study noted 74 percent of small and large institutions are considering RTP or have begun implementation. Although a large majority are adopting RTP, there are many differences for RTP within small or large FIs.
In 2019, we participated in the RTP Buildathon, sponsored by The Clearing House, Oracle, Yodlee, and The Carolina Fintech Hub. Our task was creating a compelling use case for leveraging the RTP rail and building a working prototype to demo our idea.