What’s all this buzz about faster payments?

The concepts of faster payments, real-time payments and same-day payments have been pretty hot lately.  With same-day ACH, the Federal Reserve’s Faster Payments Task Force, and announcements by The Clearing House and ClearXchange/Early Warning (Zelle), a great deal of attention has been focused on moving payments faster.  So what’s really happening and what’s the impact on most banks?

On the ACH front we now have faster payments for credit transactions. That happened Sept. 23, 2016, and NACHA just reported 13 million same-day credit entries were originated between the implementation date and the end of the year, which is more than NACHA expected. Those payments were for emergency payrolls (52 percent) just-in-time business payments (32 percent), Person-to-Person, and consumer bill payments (15 percent).  Debit transactions will be eligible to be same-day in September of this year and most research suggests debit volume will be significantly more than credit volume. Changes in funds availability requirements are not required until the fall of 2018 but many financial institutions already are giving same-day availability (late in the day) to their customers.

Same-day ACH is exactly that, an ACH entry that can be put into the network today and it will post and settle later in the day. It’s not a real-time payment and that’s where most of the buzz has been.  The Federal Reserve’s Faster Payments Task Force has been working to encourage the development and implementation of real-time payments. It developed a set of “criteria” in the 2015/early 2016 timeframe and then solicited faster payments solutions from the industry.  Ultimately, 19 were submitted. The Fed hired a consulting firm to review the 19 solutions. The group that did the review was called the QIAT or Quality Independent Assessment Team and their job was to measure each of the solutions against the effectiveness criteria; that data will be included in a final paper the task force will publish around the end of the second quarter.

Two organizations, The Clearing House and the ClearXchange/Early Warning organization, have announced plans to roll out real-time payments sometime in 2017. The Zelle product will be a P-to-P product initially, allowing one individual to pay another in real-time. The Clearing House product will be more general in scope, allowing all sorts of payments.  Both are credit-only options and both are irreversible once initiated.  The real questions are, how big is the market for faster payments, how much will it cost to enable them, and how safe will they be given the fact there won’t be time to run risk management routines before a payment is originated?

No one has all those answers yet but it’s clear most of us don’t have customers knocking down our doors looking for faster payments, let alone real-time ones. We’ve been told the Millennial generation doesn’t like to wait but are they willing to pay a premium to move money a bit faster?  We don’t know yet.  For the majority of the population, moving money faster doesn’t seem to be a priority. The most significant business cases so far have been in the international payments space where a number of other countries are leading the way.

With all these options being developed, will there be one solution that works best for everyone?  Most payments experts expect there to be multiple offerings coming to market in the next two to five years, some of which will use existing payments rails to move the payments and some that will use emerging approaches, such as Blockchain, to handle the payments and related data.

So what should you do? Should you be investing in emerging technologies to get ready for a faster or real-time payment system? Probably not unless you intend to be on the leading edge. For most financial institutions the most prudent approach is to talk to your existing core vendor to find out what they’re doing to get ready for faster payments. A few of the larger vendors have signed contracts with organizations like The Clearing House which should enable a fair number of banks to participate in real-time payment programs. It won’t be ubiquitous right away but over time, as more players enter the market, we’ll move closer to that goal.

Fred Laing, II, AAP, CCM, NCP, is president & CEO of the Upper Midwest Automated Clearing House Association, based in Brooklyn Park, Minn.