The Clearing House Sees Growth In Its Real-Time Payments (RTP)
Real-time payments often travel over fiber optic cables
Real-time payments (RTP) in the U.S have been gaining momentum in number of users, number of transactions and the growing maximum size of transactions. Even so, the U.S lags well behind such advanced payments networks as those operated by India and Brazil.
In early February The Clearing House (TCH) announced its first $10 million instant payment over the RTP network which had just raised its maximum payment from $1 million to $10 million. The payment was by Computershare, a global transfer agent, from Bank of New York Mellon (BNY) to another financial institution.
The average daily volume on the RTP network has jumped this year, from $909.2 million in January to $2.8 billion in mid-March, said Gregory MacSweeney, spokesman for TCH.
'Most of the higher value transactions appear to be corporations moving money between accounts for portfolio rebalancing, cash concentration or paying partners or suppliers. For instance, a large retail chain may move funds from its account in the Midwest, to its main account at headquarters, or move funds to another region.' The average transaction amount during that time was $2,510.
Although the RTP network has seen impressive growth, fintech firms that support it have been a little disappointed, said Erika Baumann, director of commercial banking & payments at Datos Insights.
'Alacriti, ACI, Fiserv, Icon Payments and Volante — there's nobody who isn't active in this space,' she said. Vendors are working with their client banks to help them avoid disintermediation, but she hasn't seen a lot of vendors meeting their growth goals. Instead she has seen a lot of disappointment at the pace of adoption, especially with smaller banks.
'That's the result when you don't have mandates from regulators. We kind of go through and get to it when we get to it.'
Now RTP is doing great, she added, but it took five years to get to takeoff, and then it doubled volumes quickly.
'It started off slow and then now the volumes are pretty impressive.'
RTP faced the same challenge that FedNow, the Federal Reserve's instant payment platform, now faces. Banks are faster to set up facilities to receive instant payments, since receiving is pretty much risk free, but they take longer to start sending. But until a number of banks are sending, what is there for receive-only banks to transact?
'RTP has to overcome that hurdle of getting enough banks sending; FedNow has the same hurdle.' She said FedNow has a fraction of the nation's DDAs participating.
Banks have faced technological challenges in going to real-time payments, said Nadish Lad, head of payments at Volante Technologies. It develops systems for real-time payments, including the system BNY Mellon used to send the first $10 million payment over the RTP network.
'To execute that payment, you need every application, every step to be completely real time,' said Nadish. 'Then the next problem is 24x7. These banks have core banking platforms which you can call, check the balance and validate the accounts are all good. But at 10 p.m., the core banking platform shuts down for a refresh, and then starts at 10:30 again.'
Not exactly 24x7. If a bank creates a shadow balance, it introduces complexity and added another point of failure. So the bank should modernize its core banking system, but that's like open heart surgery, said Lad.
Banks don't have to replace their cores to implement real-time, said Baumann.
'For smaller banks, many are opting to connect through their cores, but non-core providers like Finzly and Volante and Alacriti are largely core agnostic,' she said. 'It is still painful and expensive, but better than a core replacement that can take years, or sometimes a decade.'
The big four banks absolutely hold the majority of the market share, she added. 'Not only do they have about half of the total deposits in the U.S., our most recent survey of mid and large corporate indicates that about 67% of these businesses are banking with a big four.'
Uneven adoption of real-time payments is a problem for businesses, added Lad.
'If the beneficiary is BNY Mellon, then I know they will receive it in real-time. For the other beneficiaries, I'll have to send by ACH. If I added a day for everyone, no one is going to really benefit.'
Lad said banks are still studying real-time payments more than acting.
'Every prospect we talk to in the U.S market asks do you have RTP? We say yes, we have a number of clients who have been live for the last six, seven years in your U.S market. Then, when we ask what are their plans? Oh, they say, we are thinking about it. We will probably look at it next year or the year after that.'
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