2019 Real-Time Payments Report
A Readiness Report for Financial Institutions
This report serves as a readiness guide for FIs to prepare for and embrace the new payment rail. Included is an intro to RTP and its components, technical elements, and adoption requirements.
Covered are trends among North American FIs on current perceptions of, and preparation for, RTP technology. Finally, it offers best practices and next steps for FIs that want to prepare, as well as common adoption barriers.
What You Will Learn:
- Current RTP Integration Trends in the Market
- RTP Capabilities and Functionality
- How Financial Institutions Can Prepare for RTP
- The State of RTP Readiness
For the first time in more than forty years, a new payment rail has emerged in the United States: real-time payments (RTP). Created and enabled by The Clearing House (TCH), RTP allows for secure and instant payments between institutions. As countries around the world build their own real-time payment rails, RTP will have a big impact on both the US and international markets.
RTP is a new rail for clearing and settling transactions between accounts at financial institutions (FIs). It was created to better meet business and consumer expectations for a faster, smarter, more secure payments solution. After four years of development work with the support of its owner banks, TCH launched the RTP network in November 2017. That month, U.S. Bank and BNY Mellon completed the first RTP transaction; it took only three seconds.
So, how does it work? The process involves a receiving bank, a sending bank, and a pre-funded Federal Reserve account.
RTP is executed through a credit transfer payment message within the real-time payments network. The sending bank initiates the transfer, received by the receiving bank, and is finalized in under 15 seconds. This faster-payments process happens through the use of consolidated Federal Reserve accounts. The balances change relative to the amount of money transferred between institutions.
RTP was designed to address shortcomings in traditional payment methods. It enables consumers and businesses to send and receive immediate payments from their FI accounts. RTP serves as an alternative to checks and ACH (Automated Clearing House), which use batched or delayed payments. It allows banks to make instant business-to-business (B2B), peer-to-peer (P2P), business-to-consumer (B2C), and consumer-to-business (C2B) transfers—24/7, 365 days/year.
Before delving into RTP, it is helpful to examine the traditional payment process. In a B2B transaction, FIs often request a payment by sending an invoice in electronic or paper format. Once the invoice is matched to data in the client’s AP system and any possible queries are addressed, the client will send the payment. This part of the payment process can take 30-60 days.
Clients have several payment options available to help them make transfers better for consumers. Besides cash, checks are the top method of sending money; they are also the most time-consuming. Wire transfers between bank accounts are secure and fast. Taking less than 24 hours, they are more expensive and suited towards large, one-time deposits needing instant transfer.
Transfers via the ACH network, launched in 1974, get initiated in advance by a sender and processed in batches by banks. While ACH payments are predictable and enable cash flow optimization, they are not real-time and can take up to three days to clear. ACH transfers are best for organizations making frequent or recurring low-value payments.
Regardless of payment method, receiving FIs must log the deposit and match the payment to a corresponding invoice. During this process, it is common for payment information to get lost or misapplied, and for data discrepancies to arise. Once identified and matched to an invoice, the credit gets posted to the receiving FIs accounts receivable (AR) system. The complete payment process often takes 60-90 days.
RTP enables the instant transfer of payments. It also includes valuable data (such as invoice details), which has been a challenge to this point. A real-time payments platform changes the payment services experience. It creates new business models for services that banks and credit unions alike can offer on top of the RTP rail.
Many FIs are already aware of or are developing a real-time payments system to support the new rail. Larger FIs are moving towards offering this capability. Although most consumers and businesses are not yet aware of RTP, some are beginning to understand the benefits. For example, several FIs are beginning marketing and customer education campaigns.
As RTP gains ground in the North American market, FIs must understand the value of the new payment method for their own operations. It could present them with opportunities to gain a competitive advantage.
This Report Includes:
- Fully-downloadable PDF
- Your Guide to Real-time Payments in 2019
- How Real-time Payments Work
- How to Prepare for RTP