Banks and credit unions continually have to make a choice when it comes to technology—maintain the status quo and risk losing account holders, or go through the disruption and cost of a big IT project. The U.S. has been a laggard for real-time payments adoption when compared to our global peers. However, there are some misconceptions about real-time payments that may be contributing to this. Here are five common misconceptions that FIs have about real-time payments.
- I will have more to worry about when it comes to security and fraud
Anytime we have a new payment type, there is always a concern about new types of fraud. However, faster payments don’t necessarily mean faster fraud. When real-time payments first debuted in the U.K., they saw an initial spike in fraud, which quickly dissipated as the participants adjusted to the new real-time nature of the schema.
In the U.S., The Clearing House’s (TCH) RTP® network was designed to be the safest payments platform available, taking lessons from both offshore and inside our own borders into account. For example, the RTP network is a credit push model, meaning funds can’t be pulled out of an account, but rather the sender has to push the payment from their account to be sent on their way to the recipient’s account.
Customer education is key here. Since a payment settles instantly, they need to be certain of the recipient’s information that they are sending the payment to. Another measure is transaction limits, currently limited to $100,000, which may lead fraudsters to look for higher value options. Also, according to TCH, fraud tools are available to bank or credit union participants to plug into their systems to help better analyze transactions on the backend.
- Offering real-time payments is way too expensive right now
This may have been true in the past with only on-premise solutions that had very high operating costs. However, cloud-based systems have changed the landscape completely. The total cost of ownership for a cloud-based solution is dramatically different than an on-premise solution. Also, connecting to the RTP network doesn’t mean that you have to support send and receive functionality from day one. You can start with options such as just signing up for receive only. Not only is going live with real-time payments financially feasible, but it is also not a long project. The project timeline is about 3-4 months.
- We need to wait until we upgrade our core system
RTP can be very challenging for legacy cores for two reasons. One is that RTP requires 24x7x365 processing availability as a condition of entry to the network. The other is that RTP processing is at most 15 seconds. This is incompatible with a system that relies on batch processing. While having a modern core processor is ideal for a financial institution, it isn’t always feasible. However, there is something they can do in the meantime.
A proxy service can liaise between the core and the payment rails. Most of the banks that are going live today with the TCH RTP system are actually going live through technology partners, e.g., Alacriti. As a bank or a credit union, most likely, your best path to enabling RTP for your customers or members is through a technology partner. Sometimes core processors actually provide a range of RTP-related services as well that provide an easy path to access the network.
- Customer demand doesn’t justify this project yet
The value of faster payments has already been demonstrated. There has been more than 80% growth in Same Day ACH from 2019 to 2020. Banks and credit unions are seeing this demand and responding. As of February 2021, nearly 50% of TCH accounts can at least receive an RTP transaction. Also, a recent survey by PYMNTS.com revealed that 24% of consumers would switch to FIs that have real-time payment capabilities, and 30% of consumers believe that access to real-time payments is a key factor when selecting a financial institution.
Already, TCH has seen tremendous growth for banks and credit unions connecting with real-time payments. Use cases for real-time payments for merchant funding are growing rapidly, and payroll use cases are very popular for both employers and employees. Employers can attract workers with the promise of immediate payment, and employees are able to get their payroll in unprecedented time.
- It’s too early to decide how to connect to the rails; we should wait to see which one system prevails
There is no one-size-fits-all when it comes to real-time payments. For instance, a financial institution that has a few very large corporate clients may not care as much about some of the real-time or faster payments solutions available, but a P2P solution or a faster payment solution that meets the needs of small businesses is a better fit. Ultimately, financial institutions have to look at what’s best for their customers or members. Marrying their needs as both senders and receivers may make interoperability concerns more important. For example, a consumer may want to pay using one channel, but that same consumer acting as a merchant might want to receive funds via a different network.
We anticipate that rather than one network prevailing, there will be individual networks that will have their niche or their area where they serve the specific use case in question best. Work with your fintech providers and vendors to ensure you have the flexibility and access to the most settlement options possible, ensuring that each account holder can get their needs met today and in a faster future.
For more on real-time payments, please see our blog, Why RTP, Why Now?
Alacriti’s Cosmos for RTP® enables financial institutions and organizations to quickly and seamlessly connect to The Clearing House’s RTP® network without the burden of significant infrastructure overhauls or capital investments. To speak with an Alacriti real-time payments expert, please contact us at (908) 791-2916 or firstname.lastname@example.org.