Real-time payments: the next big thing in US banking

Matt Richardson, Citizens Bank: real-time payments will be the biggest change in payments since the 1970s

As with Chip and PIN credit cards, real-time payments technology gathered momentum overseas before coming to the US, but real-time payments (RTP) is here and it promises to be the biggest change in payments since the 1970s.

Matt Richardson, head of product solutions at Citizens Bank, explores the RTP journey and possibilities in the US.

Recognising the need to remain globally competitive – and to be able to connect with real-time payments systems around the world – the Federal Reserve’s Faster Payments task force set five broad goals for a new payments system:

1. near-instantaneous transactions;
2. a level of security that inspires user confidence;
3. reduced transaction costs;
4. global compatibility; and
5. industry-wide collaboration to realise these goals and encourage adoption of the new system.

The task force also set an ambitious timetable: any company, organisation or consumer with a US bank account should be able to use RTP by 2020. The Consumer Financial Protection Bureau (CFPB) also supports this objective as a way to improve financial transparency and convenience.

The Clearing House (TCH) – a banking association and payments network owned by 25 US banks including Citizens Financial Group – launched RTP in November 2017, to meet these goals. RTP is a new financial transaction system that enables businesses, consumers and governments to send funds 24x7x365 (initially up to $25,000 but expected to increase over time) with immediate and irrevocable availability to the recipient and instant confirmation to the sender. RTP is a credit push system (no debits are allowed) that ensures the certainty of funds and reduces the risk of potential fraud associated with ACH debits.

As a member-owner of TCH, Citizens is actively involved in rule making, defining operational procedures and ongoing improvement of the RTP network. In 2019, we will be among the first banks to offer access to the network.

TCH has established service level agreements with network participants to foster speed. A complete transaction may take no longer than ten seconds – from TCH transmittal to acknowledgement and acceptance by the recipient bank. The receiver has near-instant and immediate use of funds and the sender knows the payment has been received and posted. An additional benefit for users is the elimination of uncashed checks, which can help employers improve compliance with state regulations.

TCH has allowed for full industry participation, from the smallest community banks to the largest regional and national banks, to promote rapid and widespread acceptance and enable most everyone in the US – consumers and businesses alike – to send and receive RTP credits.

The RTP network has been designed using the international payment messaging standard (ISO 20022) and can eventually be interoperable with other countries’ RTP systems, which should facilitate the international expansion and ubiquitous availability of real-time payments. TCH is actively working with other real-time payments networks around the globe to improve settlement speed and transparency.

At its most basic level, RTP is about enabling users to make better use of their working capital by planning precisely when their money will move – and eliminating “limbo periods” when capital in transit is not usable by either sender or receiver. With RTP, users can plan exact payment times and receive immediate confirmation of fund transfers – a benefit, for example, to firms that take advantage of early payment discounts.

TCH has built several innovative features into the network to enhance RTP efficiency:

• Request for payment (RFP)

A vendor can send an RFP that includes invoice information or an e-bill with details to help a client reconcile a bill or purchase order. The data will be returned with the RTP, enabling automatic posting of payments, immediate reconcilement of incoming payments against the sender’s accounts receivable, reduction or elimination of much back-office work and potential reduction of payment disputes.

RFPs can also replace the use of onsite cash and check acceptance – for example, by moving cash on delivery (COD) payments to a mobile application.

A delivery person can execute an RFP and receive immediate confirmation that the payment has been received. This eliminates credit risk to the vendor in accepting checks, as well as potential cash handling risks for both the delivery person and customer.

• Request for information (RFI)

Customers or other recipients of RTPs can address questions or disputes by sending an RFI (along with the transaction identification code), which connects the information to the eventual payment. An RFI is a simple, electronic way to deal with short shipments, breakage or other reasons that may cause a payment to differ from the invoiced amount.

• Enhanced messaging capabilities

A payment sender may add freeform text and embed links to documents when sending real-time payments. Using separate remittance messages, they can also report shipment shortages, damages or other issues. In contrast with traditional customer service technologies and in the interest of providing a better, more transparent user experience, RTP keeps related order information together and accessible to both the sender and receiver.

The RFP, RFI and remittance message capabilities will help improve clarity and reduce billing disputes for a better client experience. Automated data processing can bring efficiencies to receivables management and reduce the potential for fraud and human error.

To adopt RTP, a client’s IT department or enterprise resource planning (ERP) vendor may need to upgrade systems to allow for sending and receiving payments. Once established, RTP works with existing bank accounts. Users will not be required to share account information or sign up for a separate, third-party service or disclose their account or debit card information. TCH has already reached out to many ERP vendors to help facilitate the use of RTP and payment-related messages.

You may also want to consider where RTP can provide the most benefit to your organisation. For some applications – such as batch processing of future payrolls, where amounts are known more than one to two days in advance – ACH may remain a viable solution. The advantages of RTP will be most apparent in cases that benefit from immediate payment and confirmation, 24x7x365. These include sales of products/services and COD shipments, payroll for daily workforce or terminated employees, property and casualty insurance payments and utility payments.

Banking clients expect a seamless digital experience and technology that will enable them to do their jobs better and faster. At Citizens, we have made significant investments in customer experience and we look forward to introducing our clients to the benefits of RTP.