Getting real about real-time payments

The promise of receiving payment within seconds is a reality now. Venmo your co-worker for your part of the lunch bill. Zelle your sister for the book she picked up for you. GooglePay your college student money to fly back home.

When we need or want money to be somewhere specific or to someone specific, we want to see it happen in real-time. How does real-time payments work for businesses such as banks when money needs to be moved to locations but are not typical offices due to the pandemic?

ATM Marketplace spoke with Jessica Cheney, vice president, product management and strategic solutions for Bottomline to learn more about how financial institutions are working with digital real-time payments.

Q: What do you believe is the future of real-time payments adoption in the U.S.?

A: The promise of receiving payments in seconds has been a long time coming in a very gradual crescendo—from PayPal's inception in 1998, to near real-time solutions like Venmo introduced in 2006 and now to faster payment rails introduced by The Clearing House in 2016.

The pandemic environment pushed most businesses in to a new reality - the need to move money and via locations that were not their typical, physical offices. Businesses that were beholden to doing check runs in-office faced having to convert to digital real-time payments that could be done anytime and anywhere. This behavioral change has ratcheted up interest in the efficiencies of real-time money movement. Necessity became the mother of invention once again. Use cases have evolved based on the unique work environments in which most of us are now employed. These are fueling the growth of real time payments, and will continue to do so.

These use cases have included banks themselves fulfilling PPP loan disbursements, companies offering on demand or daily payroll payouts, insurance claims payments and very large growth in all forms of contactless payments, where real time payment options work well.

TCH's RTP options also have added benefits such as billing features via payment requests, chat type communication features, and remittance information that accompanies the payment. Feature expectations and needs will further increase as real-time payments morph to a true 21st century payment method. Over the last 12 months, demand from banks to offer a real-time payments solution has increased exponentially and we have more and more banks every month interested in implementing real-time payment and payment request solutions.

Q: What are the tangible benefits of RTP?

Jessica Cheney, VP, Bottomline

A: Real-time payment solutions allow rich data to be included with speed and finality. Businesses are finding more and more use cases where real-time payments make a difference to their customers or employees.

Payroll is a great example where real-time payments are serving an increasingly 'gig economy'. Businesses can attract employees as real-time payments allow them to easily create daily payrolls where the employee's pay literally reaches them in seconds. Some in the food service industry are now using the ability to support a daily payroll as a recruitment tool. Many uses cases have been on the table from the beginning such as loan disbursements and insurance payouts. Now banks are finding uses cases from customers that they hadn't always thought about, such as the gambling industry's (online casinos and sport wagering) need for instant disbursements to winners.

Besides speed, businesses are finding they can send and receive remittance information that leads to easier reconciliation. The attractiveness of being able to send more information with a transaction, means needing less and less paper to go with that transaction. Sending and receiving messages about a particular payment is also creating stronger ties between businesses and their trading partners and suppliers by humanizing transactions. Since businesses don't all operate 9 to 5, they can transact at any hour of the day that suits their business model and operations. Other payment methods have constraints on availability.

TCH's Request for Payment has brought new focus to the value placed on the ability to send electronic simple invoices. Value comes in a number of ways. First, invoices are electronically created and sent. Second, payments that are received as a result of an electronic request for payment are automatically linked back to the request. Third, requests that are specifically tied to due dates can potentially improve a company's days sales outstanding. Finally, the request for payment and the associated payments can be supplemented with accompanying value-added electronic messages, such as the request for information and response, which can improve the payment reconciliation process.

Q: What makes the investment in RTP worthwhile for companies today?

A: 2020 was a year of disruption to the economy and the way businesses pay and get paid. The movement of money is the life blood of our economy. New behaviors are forming as there is more willingness on the part of customers to transact digitally and as interest in adopting new banking practices grows.

Real-time payments provide a great opportunity for banks to remain competitive as they've been anticipating disintermediation from an influx of players such as Walmart and other large retailers as well as other fintech companies wanting to open up their own payment exchanges. It's critical for banks to either be on the innovation spectrum or to fast followers who can keep up with the speed of change we're experiencing in the payment's arena. Real-time payments are more than just a shiny new toy. It delivers a 24 x 7 x 365 window for customers to do their business and for banks to be at the epicenter of customers' financial relationships with their customers and suppliers.

In our new reality, real time payment technology also provides an alternative to cash and credit card payments. Real time payments can be used instead of paper currency to fulfill simple daily purchases – many service providers now prefer this method of contactless payment. Real time payments are also an alternative to credit card transactions in times of economic uncertainty where some consumers are reluctant to rely on the use of credit cards for payments.

Q: What are the customer expectations surrounding RTP?

A: Payments are not just about sending money from point A to point B. Real-time payments removes the friction that we've seen in the constraints of other payment types.

Customers have many expectations. They want to know that a payment was received by the person they sent it to and when. Businesses also want enough information to efficiently reconcile payments. They want to be able to hold their cash as long as they can. They would like a way to converse about a particular payment and keep this information tightly coupled with the payment.

Consider millennials who currently are the largest generation in the workforce. Their expectations are what real-time payments can deliver on — immediacy, ability to conduct business any hour of the day, and with a communication channel incorporated between the payment parties. Millennials comprise a large entrepreneurial segment and are imagining new ways to do business. They require payment methods that support simplicity, transparency, and a user experience that rivals the simplicity of many of their phone apps.

Q: What are you seeing as a trend regarding demand for RTP?

A: Business demand for real time payments is trending up — consumer demand has been strong for several years now as evidenced by the growth of Venmo, Zelle, and recently the CashApp. Referencing Citizen's Bank's Real Time Payments Outlook survey again, 69% of their corporate respondents are on the path to adopting real time payments to meet their payments and billing needs and of those companies 81% are doing it within the next year. And banks of all sizes are now exploring how to support RTP in the immediate future.

Q: Why do people view the U.S. as lagging behind in RTP?

A: Other countries like the U.K., Australia, and Southeast Asia have adopted faster payments ahead of the U.S. Here are a few of the factors as to why that's the case:

• The U.S. is still very check-centric. As real-time payments become a more ubiquitous offering, and as they include the ability to utilize aliases when sending to both consumer and businesses, real-time payments will make it easier for payment behaviors to change.
• ACH and wire have been sufficient for a long time and many business processes are tied to working with these payment types. The addition of Same Day ACH in the US in 2016 was several years behind a similar concept in the UK of BACs Faster Payments ( 2008), but the implementation of Same Day ACH was overshadowed by the industry movement to focus on real time payments started by the Federal Reserve's Faster Payments Taskforce work in that same year.
• The industry needed to build a totally new infrastructure and rails that weren't a faster horse (which is what many thought same day ACH was), but a sports car. An important element of this was the standardization of messages for sending and receiving these payments.
• Banks have to make some fundamental changes in their operations to support payments that can be processed around the clock.

Q: What are the similarities between U.S. Same-Day ACH and "instant payments" used in Europe?

A: The two core differences between U.S. Same-Day ACH and the SEPA Instant Payments in Europe are the speed of the payment— U.S. Same-Day ACH payments are sent and received in the same day, but can still take hours to complete and are only available to be processed on business days. With "instant payments" the money is made available within 10 seconds on the account of the recipient, 24-hours a day, 365-days a year. And U.S. Same-Day ACH payments are domestic U.S. payments only, whereas SEPA Instant Payments are used cross boarder in several European Countries.

Q: What do you see as next steps for RTP in the U.S.?

A: We're very interested in the interoperability between payment solutions such as Zelle, Clearing House RTP Network, and the FedNow instant payment initiative. The industry has talked about the intense need for interoperability and its hope to have a collaborative spirit on the development of a truly ubiquitous real time payment system. We see this as a very positive way to capitalize on the best practices that will help meet and exceed the needs of our customers.

Another facet, currently in a nascent stage, is the promise of an end-to-end billing to payment solution. What customers desire is a data-rich service that provides more transparency than traditional bill payment offerings. Industry experts say that 60% of ACH payments in B2B are made without data connected to then which makes reconciliation hard. Over 4 million businesses in the U.S. need to bill. What we are seeing is payment networks giving a very critical eye on how to make the process easier, more efficient, and how to standardize it so it's easily adoptable.