the power to do business in real time

[Text on screen:]

Bank of America

 

U.S. Real-Time Payments

 

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Real-Time Payments, or RTP, is a new way to transfer funds instantly—anytime. It’s the first new clearing system in the U.S. in about 40 years and has the potential to simplify your operations, reduce your payment risks, and deepen your supplier-customer relationships.

 

Although it’s called Real-Time Payments, RTP is designed for sending and receiving funds to both companies and individuals. You can use RTP through Bank of America to do business with vendors, suppliers, customers, and even employees. In this podcast, I’ll talk about the benefits of RTP, explain how it works, and present several use cases. I’ll also touch on RTP’s robust messaging and how the extra information that’s attached to every payment could be a game changer for your business and customers, and finally I’ll close by revealing what you can be doing right now to prepare for sending and receiving RTP.

 

So let’s get started.

 

RTP was launched last year in the U.S. by the Clearinghouse, it’s the first new clearing system in the U.S. since the 1970s and it complements other types of electronic, low-value payments such as ACH, card, and mobile. But there are two key traits that set RTP apart from those payment types.

 

First and foremost is speed. Real-Time Payments settle instantly and are irrevocable. The other differentiator is that you can send and receive Real-Time Payments 24/7 when other payment options aren’t available.

 

Globally, Real-Time Payments already have a head start. The United Kingdom, for example, launched Real-Time Payments 10 years ago. They continue to grow in that market, and similar growth is forecast for the U.S.

 

At the same time, low-value payments are booming globally, due largely to e-commerce and gig economy, which means lots of potential opportunity for RTP growth everywhere.

 

Now let’s talk about use cases for Real-Time Payments.

 

Emergency payments are a major opportunity because of RTP’s immediacy and 24/7 availability.

 

A second use case is customer billing: Your customers can send real-time payments by responding to a request-for-payment message that you send to them. Their funds arrive instantly with enough attached info to make reconciliation easy.

 

Receiving RTP from your customers can be extremely valuable, not just for the speed but because of the extra data that’s attached to every transaction. That data can give deep insight into your customer base and behavior, including how they want to interact with you and how they want to send and receive info about their payments. We’ll talk more about requests for payment and payment data in a few minutes.

 

The gig economy and businesses that facilitate and exchange between two parties are also strong opportunities for RTP. Workers who aren’t part of your normal payroll and people who sell goods online expect instant payments for wages and sold goods. RTP can work really well here.

 

Another business scenario where RTP could gain traction is payments on demand. Companies that sell to other companies, such as beverage distributors, often expect immediate payment upon delivery for various reasons. RTP can make the new sale possible.

 

A final use case for RTP is when you want to optimize your working capital: holding on to your funds as long as possible before paying.

 

All of these use cases have one thing in common: The Real-Time Payment will be replacing an ACH, check, or cash payment. RTP is faster than ACH and can enable greater messaging and replacing paper flows with RTP has a whole list of benefits.

 

Now let’s switch gears and talk about messaging and data. RTP messages use the ISO 20002 format. ISO is the standard global language for financial communications, crucial for supporting system inter-offerability. RTP’s ISO messages can carry a large amount of data. This enables senders and receivers to integrate back-office systems more easily and increase straight-through processing.

 

So what kind of RTP messages are there? And what information do they include?

 

A Real-Time Credit transfer instructs the payor’s bank to move funds to a beneficiary. Beneficiaries receive funds immediately and all payments are final and irrevocable. The payment itself can carry some reference details and there’s also a unique identifier that accompanies the message over the life of the transaction for any inquiries that arise.

 

Request for Payment, or RFP, is another RTP message type. As I touched on earlier, RFP messages enable a biller or recipient to ask for Real-Time Payment from customers or other debtors. RFP isn’t available in every system around the globe, but it’s going to be a key feature in the U.S. The payment that follows the RFP will include the reference info from the original request, which will simplify reconciliation for the recipient. And, unlike ACH debits, with an RFP the biller doesn’t pull funds from a customer’s account. So there’s no risk of returns or other types of rejections.

 

There are also three types of non-financial messages. There’s a request for information, which the recipient can send to ask for more details about the payment. There’s also a remittance advice, that can be attached to a payment, which can include up to 4,000 characters’ worth of invoice numbers and other payment details. And, lastly, there’s an optional acknowledgement of payment by the receiver. Banks that carry out RTP transactions must respond to each other and acknowledge every payment receipt. And billers can send messages back to customers to thank them for payments and notify them once they are posted.

 

The net effect of all these message types is clear: unprecedented transparency into payment flows. Senders and receivers will have the power to seamlessly tie together the payment, the remittance information, and supporting documents, using either the optional ID that a sender can use to identify payment for its customer, or the unique ID that banks embed in each transaction. RTP keeps these communications and processes within a single, secure bank ecosystem.

 

Having greater transparency and connectivity, as I just described, can transform your back office. And it can even simplify how you interact with your bank. As more payments shift to real time, that may lead to less host-to-host integration and file transfers. APIs may become more prevalent since they make real-time exchanges easier. This means your suppliers, your customers, and your bank can be better connected through real-time initiation, confirmation, and messaging at every step.

 

Bank of America is investing heavily in our API capabilities and we can actively support you in making the shift to real-time payments, regardless of how you want to send them.

 

Speaking of making the shift, there are things you can do right now to begin preparing your systems and team. Some of these things are technical, and others are more strategic. First, on both the send and receive sides, you’ll want to update your treasury system to accept the new BAI codes for real-time payments. These have all been published by the accredited standards committee, which will ensure consistency across all the U.S. banks that handle Real-Time Payments. You’ll also want to review your alert and notification settings and make sure that the right people in your organization are receiving the alerts and notifications. With RTP, Bank of America will send real-time notifications for every real-time payment. You can toggle these notification settings within your treasury system.

 

Going forward, as you plan long-term treasury investments and strategy, think about how you receive these notifications and alerts. You might want to build an API that creates a real-time back-end to back-end communication for those alerts. Since RTP is available 24/7, review your internal processes and procedures for receiving payments on nights and weekends. You won’t necessarily need 24/7 operations, but you’ll need to figure out what to do with payments received after hours.

 

In terms of sending payments, approvals are key since RTP settlement is final. Clarifying who has the authority to initiate and approve payments is essential. You might also need examine the payment flow throughout your organization, since these will now happen in real time.

 

In closing, I’d like to thank you for listening in today, and you want to know more about Real-Time Payments and how to put them to work for your business, contact your treasury sales officer at Bank of America for expert assistance.