Catching up with the times, banks in the US are finally rolling out real-time payments
- U.S. Bank and BNY Mellon initiated the first real-time payment transaction Monday -- a test run for what's expected to become a standard for many business and consumer payments.
- Building the technology and customer service infrastructure to support real-time payments will delay implementation across the U.S. banking ecosystem.
Banks are finally starting to do something that used to be unthinkable: Let you send money and have your recipient get it at the same time, or just a few seconds later.
For a generation growing up on Venmo, this may seem like a no-brainer. But in truth, there has been, until now, no way for funds to transfer from account to account without a significant time lag, at least in the U.S.
BNY Mellon and U.S. Bank carried out the first transaction Monday, moving $3.50 through two different accounts owned by one customer at both institutions. It befuddlingly included the message “Exploration is in our Nature – Carl Sagan.” The funds moved between the accounts within three seconds.
The Real-Time Payments Network, run by The Clearing House, a consortium owned by major U.S. Banks, lets businesses and consumers send and receive funds in seconds. It also allows parties to send messages in real time.
“Let’s say I’m a utility and I want to send a consumer a real-time message that says ‘hey you owe me a monthly payment,’ then the consumer sees that, presses a button and originates a real-time payment to the utility,” said Tony Brady, digital investment platform officer at BNY Mellon Treasury Services.
The tech is powered by Mastercard-owned Vocalink. What’s different about the real-time payments system as compared to legacy systems is that it only works when a consumer or business sends funds to another party; it doesn’t work for direct debits. Each payment sent through the system is permanent and irrevocable, and it will operate 365 days a year, 24 hours a day.
“Some payment systems allow consumers to revoke payments in a certain period of time, and it causes issues [for recipients] — you think you’ve been paid then 30 days later the consumer revokes the payment,” said Brady.
Future applications for the real-time payments system include a range of peer-to-peer, business-to-business and business-to-consumer use cases. Similar real-time payments systems are already live in other parts of the world, including the U.K., Singapore and Thailand. Other major U.S. banks, including JPMorgan Chase, Citigroup, PNC and SunTrust are expected to roll out the technology within the next month, according to The Clearing House. Brady said he expects that real-time payments systems across the world will eventually link together.
As for reaching full adoption within the U.S., The Clearing House doesn’t expect it to reach “ubiquity” until 2020. This is partially due to the time it will take for banks to onboard the technology and build capabilities within mobile banking apps, said Brady. Sandra Horn, senior principal product manager at technology company ACI, which is working with financial institutions to onboard them to the real-time payments system, said the network’s 24-7 operations will have implications for banks.
“The banks have to consider the whole new environment of 24-7 support,” she said. “Many of the systems they run or the way they run them are not on a 24-7 basis.” She added that this will affect customer service staffing as well as back-end technology to support the move to real-time payments.
Despite the move toward real-time payments, the ACH system is better suited to deal with situations where a predictable payout is made for large disbursements. Brady said he expects both systems to operate in parallel, so payment providers can choose the solution that best suits their needs.
“ACH is very efficient for high volume but not good for those situations where you need to move money now or you’re not sure how much is owed until the last minute — think of hourly payroll or emergency disbursements in a disaster situation.”
Image courtesy of The Clearing House