The transition to real-time payments: looking beyond speed

Real-time payments (RTP) are not ubiquitous… yet. Nevertheless, it would be shortsighted to think that their only value is in their immediacy or that their only application is in the GIG economy. While there is no government mandate for real-time payments in the United States, the launch of a second real-time payment rail led by the Federal Reserve is a good indicator of the change ahead.

The evolution of payments is being increasingly driven by our demand for immediacy, as corporate practitioners and as consumers. In this context, the immediacy, transparency, finality and certainty of real-time payments have created a vast array of use cases for the payments industry. In fact, the U.S. Faster Payment Council lists over 130 use cases that go well beyond basic consumer technology applications.

Some real-time-payment use cases result in the replacement of another payment type, like checks, while other use cases are creating completely new opportunities to engage customers by improving the payment process and experience. This is part of a broader consumer trend where technology is changing how we consume data and experiences. As these expectations change, real-time payments will be a key tool in filling this need by enabling payment experiences that are immediate, transparent and certain. 

Without a doubt, the ability to make a payment immediately has value. However, focusing solely on the speed of real-time payments diminishes its true value and may hinder adoption. When applied across use cases, the speed of a payment can oſten be the second or third most important attribute of a real-time payment.

Accounts Payable professionals oſten ask “Why would I want to pay anyone faster?” The cash flow implications of funds leaving their account faster preclude them from seeing the true value of a real-time payment. What is oſten lost is that it is not a faster payment. It is a precision payment that allows you to originate the payment exactly when you want to send it.

Transparency into the status of a payment is a particularly valuable attribute of a real-time payment. Treasury professionals no longer need to wait for hours or days for word from a supplier or critical counterparty in the form of a query or complaint. Issues with a payment that has not been received or a check that has been lost in the mail are also eliminated. Within a few seconds of a payment being made, the originator knows whether a transaction was successful and can take immediate action in the event of failure. This ultimately reduces delays in payments, minimizes rework and supports more efficient treasury processes.

The Clearing House launched the first real-time payment system in the U.S. over six years ago. While it has taken time for adoption, volumes have grown materially with a sixfold increase in the last four years.  Given the lack of a mandate, the sheer size of the U.S. market, and the thousands of financial institutions that need to engage and invest, this growth is a considerable feat.

Unlike areas of the world where mandates have driven the growth and adoption of real-time payments, the U.S. has seen its growth driven by market demand. One area of focus in the U.S. is the opportunity to reduce check volume. While efforts to curb check volume have been a focus for years, many businesses still rely on checks because either they don’t have the credentials to send electronic payments or back-office processes still use payment data that comes with a check. As such, the transition from checks to real-time payments is not as simple as collecting a credential and routing a payment—there needs to be a way to also share required data. This is where real-time payment systems that use the ISO20022 standard provide an opportunity. The ability to include more data than is available in most other electronic payment types gives real-time payments one of the tools needed to reduce check volume. This is an industry journey that will require continued investment in back-office processes and core business systems to enable the transition.

For Bank of America, real-time payment ecosystems are just a few of the many future-focused payment technologies that we are investing in. We understand that each company is on its own unique path in its real-time journey, and we continue to invest in the technologies to support our customers wherever they may be along that path.