Welcome to Real-Time Payments

June 21, 2018 Wendy Humphrey

On November 13, 2017, The Clearing House (TCH) — a banking association and payments company — initiated a transfer from BNY Mellon to U.S. Bank for the modest sum of $3.50. To those watching closely, the significance of the transfer far exceeded the actual dollar amount. Indeed, this was a test — a test that, once completed, heralded the arrival of an altogether new payments clearing system: Real-Time Payments (RTP).

What are Real Time Payments?

The goal of RTP is straightforward: Funds transfer in real time, and confirmation of the payment is sent to account holders on both sides simultaneously.

Such instant payment clearings are a step up from same-day ACH (Automated Clearing House), which until now had been a faster method of receiving funds from a buyer other than handing over cash.

RTP is the brainchild of The Clearing House (TCH), a banking association that has partnered with 25 member banks to implement the new payments system. Six of the banks — U.S. Bancorp, Citibank, JPMorgan Chase, BNY Mellon, SunTrust, and PNC Financial Services Group — are processing payments through the new platform. 

This important business development enables the transfer of funds with greater speed and transparency than ever before — along with integrated payer and payee information that makes the overall process much simpler and easier than other transfer methods. 

Another benefit is that RTP is available 24/7/365, making it always available beyond the typical eight hours, five days a week of TCH member banks.

Other countries have also introduced real-time payments systems. The United Kingdom was an early adopter, unveiling the Faster Payments Scheme Limited (FPSL) in 2008 to move mobile, internet, telephone and standing-order payments on a 24-hour basis in near-real time. More than 400 financial institutions currently offer FPSL to over 52 million account holders. The European Union, Australia and New Zealand have introduced their own systems, called Single Euro Payments Area (SEPA) and New Payments Platform (NPP), respectively.

It's important to note that these new payments platforms are not designed to replace ACH, wire transfers or even checks; rather, they are perceived as just one of several options from which to choose. Still, many are predicting that real-time payments will become the most common means of sending and receiving payments at some point in the future.

Show me the money

Corporate treasury and finance and accounting organizations have long sought a payments system that reduces the back and forth emails between companies and their banks regarding the status of payments. RTP efficiently addresses these frustrating back-office reconciliations.

Armed with validation that a payment has been securely made and received, companies can now immediately access this money for operating needs instead of relying on short-term borrowing. What had been debt is now working capital — a vital metric of a company's financial health. Companies that choose to make payments via RTP are better able to quickly address their short-term expenses and liabilities — giving them a leg up on the competition.

There are many situations where quick access to funds can make a huge difference at both an individual level and for organizations. Here are a few real-life scenarios in which RTP can have a big impact.

Disbursement for insurance claims: A person gets into a car accident and repair costs are in the thousands. Having quick access to insurance funds means less emotional and financial stress for the individual as well as a more positive brand reputation for the insurance company.

Delivery of disaster relief funds: In times of emergency, individuals affected need immediate access to relief funds for food and shelter. RTP can make a big impact at both a national and global scale.

Customer refunds and payments: Merchants of any type and size can benefit from the ability to process customer refunds and payments more quickly and easily. For example, let’s say an airline delays a flight by two hours due to weather, and passengers are annoyed by the inconvenience. To make things right, instead of paper meal vouchers, the airline uses RTP to deposit $25 into each affected passenger’s bank account on the spot. An hour later, several tagged social media posts crop up with photos showing passengers happily eating lunch “on the airline” during their layover. In that instance, RTP can help convert a negative brand event into a more positive outcome for all.

Real time, all the time

In a world of Amazon Prime, where both individuals and businesses increasingly expect all transactions to occur instantly, Real Time Payments are a natural evolution in step with a broader march toward real-time everything. The goal in the U.S. is to have all U.S. banks RTP-eligible or on the network by 2020.

As the remainder of the world gears up to introduce their versions of Real-Time Payments, global commerce will occur at speeds previously unimaginable.

Emails already zip across continents — payments are on the verge of doing the same.

About the Author

Commercial Prepaid Team Lead, Conduent

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