It has been a year since The Clearing House (TCH) unveiled their real-time payments (RTP) network, and several small-to-large banks have already joined the effort. In this year, the dialogue in the US payments ecosystem has irreversibly shifted towards offering faster speed, more choices and simpler ways of sending and receiving payments. However, mass adoption remains some distance away.
Adoption of real-time payments is a two-way street. The network generates a lot of excitement due to its obvious benefits and individuals and businesses want to take advantage of its unique features. However, organizations must be willing (and financially able) to make changes within their payments systems and processes to take full advantage of the efficiencies the network offers.
As we sit in our customers’ offices and their operations centers, we have heard several reasons why it might be worth making an immediate investment, and many reasons why it might make sense for an organization to take a more measured approach.
At its heart, real-time payments offers the means to provide faster, more reliable and safer payments. You aren’t restricted by processing times, since RTP transactions occur instantaneously, 24/7. However, the key RTP differentiator is that it enables organizations to communicate the context of the payment through the introduction of innovative messages such as request for information and request for payment.
In a business-to-business request for payment transaction, the RTP workflow processes payments through the following steps:
1. The supplier sends a request for payment to its bank
2. The supplier’s bank validates and routes the request for payment to the buyer’s bank over the RTP network
3. The buyer sends the payment to its bank
4. The RTP network validates the buyer’s payment, and updates the multilateral-net settlement (MNSP)
5. RTP sends the payment to the supplier’s bank, who then pays the supplier. The supplier provides ordered goods to the buyer
6. Confirmation of the payment is provided back to the buyer’s bank.
The graphic below from TCH provides a visual representation of the RTP process:
This exchange of information takes literally seconds to complete, rather than the customary 1-2 days from a standard ACH transaction. From a settlement standpoint, that can save suppliers and buyers’ time and revenue from waiting for payments to clear.
In its first year, RTP has provided a direct response to traditional, multi-day payment processing. The potential of RTP, while still to be fully determined, lies with its broad applicability and enhanced capabilities.
Here are some of the major benefits that RTP brought to piloting organizations:
The RTP network provides an exciting – if logistically harrowing – path forward for treasury managers. But it may take several years for some organizations to test its capabilities beyond small-scale pilots.
RTP is still a new network, merely a year old and independent from other long-existing networks like ACH. It must yet prove itself in the eyes of organizations who are hesitant to invest in the system.
By the end of 2018, the opportunity to utilize RTP through banks will cover approximately 50% of accounts in the U.S., with a goal to achieve full coverage by 2020. Piloting organizations have noted that, while RTP doesn’t necessarily replace the need for other digital platforms like ACH, credit cards or debit cards, it will likely cause a dramatic reduction in paper check payments.
Analysts have long predicted the demise of paper checks, yet checks are still being widely used – especially in B2B settings with vendors who cannot accept digital payment methods and payers who cannot send remittance detail electronically. For reducing the volume of checks used for these transactions, RTP may offer the clearest path yet.
As always, though, RTP is just one part of a comprehensive payment strategy. If you need help figuring out what to do, we have some resources to help get you started.
Contact a U.S. Bank relationship manager to see how we can help you venture into the world of RTP.