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Finextra
06-05-2025
- Business
- Finextra
US digital payments: How are new and traditional payments rails merging?
0 This is an excerpt from The Future of US Digital Payments 2025: ACH & Beyond. It's been an exciting few years watching the launch and take off of instant payments in the US after many years of discussions about the US being 'behind'. With the start of RTP in 2016 and the introduction of FedNow in 2023, the infrastructure is now in place to truly get us off and running. However, growth has been slow in terms of adoption by banks and transaction volume. After all the discussions and industry push for the US to have this infrastructure and how the US has lagged behind others, why is adoption taking so long? Is it the established usage of current rails - Wire and ACH specifically - that are impacting this growth, or is it something else?' Background ACH and Wire have both been in operation in the US for many decades and as is the case with instant payments, the US has two key providers: The Clearing House and the Federal Reserve. Domestically, wires are traditionally used as a wholesale product—primarily for high-value payments between banks. They're also used for other significant transactions, such as home purchases or funding large deals. ACH, on the other hand, is the system with the largest transaction volume in the US, handling over 30 billion payments annually. ACH primarily serves the retail system, handling payments like bill pay, payroll, and other use cases. Both of these payment types have developed extensive infrastructure over the years – not only within financial institutions but also within corporations and their payment service providers. The wire schemes are Real-Time Gross Settlement (RTGS) systems, meaning each transaction settles individually (though CHIPS uses a liquidity net settlement approach), whereas ACH is a batch processing system, where most transactions settle over a day or more, with some transactions settling during same-day ACH windows. While this makes ACH closer to real-time, it still falls short. One key difference with instant payments is the rule that ensures funds are made available to the end recipient in near real-time, within seconds or minutes. Neither ACH nor Wire offers this feature. The use cases At first glance, it may seem that existing rails like Wire and ACH cover all payment use cases, but the reality is more complex. While many use cases do move across these rails, there would be significant benefits for both senders and recipients if these transactions were processed through instant payment systems. Instant payments provide easier liquidity management, immediate access to funds, and lower costs (when compared to a wire transfer). However, moving use cases and the associated payments over to new rails isn't always a straightforward process. For other use cases like splitting a bar tab, the US has created industry solutions that address this gap. These include Zelle, a real-time payment messaging network owned by EWS, which, while not offering real-time bank settlement, functions similarly by making funds available to end users immediately. Other examples are PayPal and Venmo, which are wallet-based solutions that allow individuals to make real-time payments. While these existing solutions help address the demand, there are still strong reasons why it could be beneficial to move payments to instant rails. Notably, the bank settlement synching with the customer settlement mitigates the credit risk that exists in current models. Additionally, these systems are secure and backed by bank funds, allowing for higher transaction limits (RTP at $10 million and FedNow moving to $1 million). As with any new rail, new use cases will likely emerge that we haven't yet anticipated. For example, during the Covid-19 pandemic, the urgent need for instant emergency fund transfers became a significant issue - an example of a problem that these new rails can solve instantly. Another example is the gig economy, where instant payments can allow workers to be paid immediately after each transaction (e.g., an Uber driver) rather than waiting for the usual payday cycle. So, what's the issue? While there are clear benefits to moving payment use cases to these new rails, there is also a substantial cost. To implement this effectively, banks and industry providers need to consider significant modernisation of their technology stacks, as well as adjustments to their procedures and policies. In the current environment, this isn't an easy request. With everyone focused on return on investment, it's challenging to make a strong business case for bearing these costs while adoption remains low. However, without more banks adopting these changes and making necessary investments, the growth in adoption will continue to be slow. Banks and other providers should explore ways to invest in these rails at a lower cost. Many providers offer services in this space. For example, cloud-native solutions are designed not only to handle these rails but also to accommodate future growth. With a multi-cloud solution providing resilience and high performance, a technology provider removes the burden of banks having to build their own infrastructure for connecting to these rails. It also allows banks to separate the modernisation of their banking systems from the actual connection, insulating them from future changes and allowing them to focus on their core business. Conclusion While existing rails today handle many payment types and use cases, the new instant payment rails will bring substantial benefits, both for new use cases and for improving efficiencies in existing systems. That said, as with any product, when driving innovation, it's tempting to stick with the familiar - what you 'have today'. ACH and Wire do provide that sense of security, which can act as a distraction for banks as they work to build their business cases for these new payment rails. Ultimately, however, demand and competition will push both consumers and businesses toward the real-time payment world. We will see payments evolve across all rails, including FedNow and RTP.
Yahoo
02-05-2025
- Business
- Yahoo
Walmart drives toward instant payments
This story was originally published on Payments Dive. To receive daily news and insights, subscribe to our free daily Payments Dive newsletter. Walmart, the biggest U.S. retail chain, is increasingly eager to offer its customers instant payment options as it seeks to speed up services and keep costs low. The Bentonville, Arkansas-based retailer has also long been intent on finding ways to avoid interchange fees incurred every time a customer uses a credit or debit card. Last September, Walmart said it would begin offering customers a pay-by-bank option to avoid those fees, ultimately with a real-time option. While the retailer said last year that the instant option might be available this year, it could take longer, based on comments from a Walmart executive this week at Nacha's Smarter Faster Payments conference in New Orleans. 'We're really bullish on instant payments and hoping to move forward with them within the next year,' Sarah Arnio, Walmart's director of digital payments, said Wednesday during a panel discussion focused on real-time payments. Real-time payments have been around since 2017 thanks to The Clearing House starting the RTP network that year, but only some banks have adopted the new tool, and those that have signed up have had tepid uptake in the marketplace. The launch in 2023 of the Federal Reserve's competing instant system, FedNow, has boosted adoption by banks, but real world use remains limited. Walmart last year gave customers the option to sign up on its website to be able to pay directly from a bank account, moving those payments via low-cost, automated clearing house transfers, also known as ACH payments. But ACH is a 'stepping stone' to faster instant payments, Arnio told the payments, banking and fintech professionals attending the conference. 'We at Walmart really have a drive internally to speed up everything,' she said. Walmart is seeking to speed up checkout and processing of online orders, she explained. Recently, it also set a goal of delivering groceries to 95% of customers within three hours by the end of the year, she added. For now, though, real-time payment obstacles remain. For instance, RTP doesn't support e-commerce payments and while FedNow does, its process includes unwanted friction, Arnio said. 'We have the foundation to get there, but there's still kind of, obviously, a few roadblocks or hurdles that we have to overcome,' she said. Walmart isn't the only retailer embracing instant payments. 'The momentum is here – it's growing,' she said. 'We're definitely at a tipping point where this is only going to grow even further. While the lack of bank interest had been a hurdle in the past, she predicts retailers will plow through it. 'We're going down the path of instant payments, whether we have all the financial institutions or not,' she predicted. The big bank owners of The Clearing House have signed up for RTP, but their smaller rivals have been more reluctant. Although FedNow appeals more to community and regional banks, it still has onboarded only about 1,300 of the country's 9,100 financial institutions. Walmart customers, who tend to use debit cards over credit cards, are conscious of transparency with respect to their spending so real-time payments could be a positive for them, Arnio explained. 'They want visibility into their account,' she said. They also want to receive refunds fast. The most common customer call to the retailer's call centers is about when a refund is coming, Arnio said. 'Having that real time refund in their account, that is going to be a game-changer for these customers, and so I think that is going to drive a lot of adoption,' she said. In terms of Walmart's payments to suppliers or other businesses, real-time payments has been a bit of a tough sell when Arnio occasionally asks her treasury colleagues if they've considered using RTP or FedNow, she said. That's because they're more familiar with the low-cost ACH option, but also because bankers don't highlight the real-time alternative, she said. 'They're not hearing about it from their banking relationship partners,' Arnio said. 'It's just not something that's being pushed from the bank side, so that's where I think there's a bit of a disconnect.' Another panelist, Michael Thomas, who is U.S. Bank's head of instant payments, noted that some companies seem apprehensive about faster payments enabling faster fraud, but he contended that isn't the case so far. 'There's really low rates of fraud,' said Thomas, noting that is somewhat related to the limited use cases so far. 'We have a lot of education still to do.' More than fearing fraud, companies should fear missing out on the phenomenon, because real-time payments will become a competitive advantage, Thomas said. Eventually, they'll also be useful for cross-border transactions too, he added. But companies and banks have yet to make the investments in technology and processes that are needed to build the real-time payments realm. Specifically, financial institutions must sign up to send payments because many are equipped only to receive payments, said another panelist, U.S. Faster Payments Council Executive Director Reed Luhtanen. 'You have to be figuring out what's your pathway to get to send, because that's where you really unlock a lot of this value,' Luhtanen told the conference attendees. Recommended Reading FedNow draws 1,300 financial firms Sign in to access your portfolio
Forbes
16-04-2025
- Business
- Forbes
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.'
