Everything in the technology world seems to be getting faster, and the payments industry isn't immune to the trend.
In recent months, the desire for faster or even real-time payments has been a hot topic in the industry. Last fall, new rules expanded same-day ACH (Automated Clearing House) capabilities,1 which enable electronic payments to be debited directly from a customer's account. In addition, at the end of 2018, Walmart and Target asked the Federal Reserve to implement a solution to help merchants get paid faster.2
Robin Reodica, product management executive at Bank of America Merchant Services, has kept a close eye on this quickly evolving corner of the payments ecosystem. In this Q&A, Reodica shares his insights on recent innovations in real-time payments and how businesses can best leverage them.
Q. What does the term "real-time payments" mean?
Real-time payments (RTP), also known as faster payments, have been described by the U.S. Faster Payments Council as payments in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time.
Examples of these solutions in the U.S. are same-day ACH, where funds are made available to the recipients by 5 p.m. local time if disbursements were sent by the daily cutoff times, and real time payments, which process each transaction disbursement posted in near-real time.
Real-time payments also allow the recipient of the funds to access their money 24/7/365. With advancements in payment technologies and channels such as mobile that are always connected, consumer and business requirements have changed, and different solutions from traditional and upstart players are emerging.
Q. How did real-time payments come about?
Since the beginning of electronic payments, consumers and businesses have been requesting faster and faster access to funds.
Due to more manageable and capable systems, the international markets have been rolling out payment solutions within their local markets in the past decade.
In 2008, for example, Pay.UK [a retail payments authority in the U.K.] went to market with its faster payments platform where customers can schedule single, recurring and forward-dated payments. Corporate entities can also securely send payment instructions any time of the day for processing and immediate funding to beneficiaries.
In 2014, Singapore introduced 24/7 bank-to-bank transfer transactions through its Fast and Secure Transfer (FAST) solution,3 and Vocalink, a Mastercard real-time payments solution, has gained a foothold in the European Union.4
In 2018, Australia introduced its New Payment Platform (NPP). This service is similar to Zelle, a payment method introduced in the U.S. in 2017 that allows bank customers to move their money electronically with email addresses or mobile phone numbers.
Q. What impact do you think real-time payments will have on the overall payments ecosystem?
Real-time payment systems solve the longstanding slower processing times of the past and speeds up innovation. Initially, however, the impact of implementing faster payment solutions will require significant investments and time, as organizations transition from past practices and systems.
It will be a similar impact for merchants and acquirers who use legacy POS equipment and system technologies. After making upgrades, however, organizations can support new innovations [API integration, for example] and more quickly implement solutions [Agile methodologies] for their customers.
Q. You have already talked about the international market for real-time payments. What about the U.S. market?
It is apparent that the U.S. market needs to have a faster payments solution to compete in the global market and to meet the expectations of consumers and businesses.
Some of this work is already underway. A Federal Reserve task force started in 2015 recommended more collaboration between financial institutions, which is reflected in the Zelle product. Additionally, NACHA, an association of financial institutions, completed its three-phase rollout supporting credit, debit and rule updates to support same-day payments for payees. The Clearing House, another banking association, also has a real-time payments (RTP) system that can manage bank-to-bank payments.
We've seen reports of increased adoption of Zelle and same-day ACH. Both products are starting to play a more prominent role in the business-to-consumer [B2C], government-to-consumer [G2C], and business-to-business [B2B] spaces.
Q. What do real-time payments mean for Bank of America Merchant Services clients?
As we hear from clients, we respond by strategically solving their requests for support. For example, we fulfilled requests for faster funds disbursements from our larger clients in 2018 with the rollout of our Direct-to-Card Disbursements Service. This service allows our clients to send funds to their customers or suppliers via their Mastercard or Visa debit or prepaid reloadable cards within minutes.
As always, Bank of America Merchant Services will continue to pivot as industry trends, proprietary research and client requests and feedback regarding real-time payments continue to evolve.