Real time payments – To go or not to go?

The Clearing House, recently launched Real Time Payments in the USA. The banking community has been bullish about the new development. Last month,  US Bank Corp and BNY Mellon performed a limited demonstration of RTP capability by transferring money across accounts within a matter of a second. PNC Bank has just announced the launch of Real Time Payment services. Three more top banks will join this exclusive list in the near future.

And this list will grow rapidly, soon enough.

Year 2018 and 2019 will be the transformational years for payments in USA, dramatically changing the customer experience from T+1 or same day transfer to instant fund availability.

While 12 countries across the globe already have instant payments for the last a few years (Japan has had instant payment for the last 4 decades), this experience is entirely new for USA. The US Banks and financial institutions are still on the fence about Real Time Payments.

Let us look at how instant payments performs in two of the countries where they have been operational for more than 5 years.

The Great Indian experience

 India saw the launch of IMPS in the year 2010. Furthermore, NEFT and RTGS payments were already common place and both these payments had a 2-hour settlement window. India also had mandate based ACH payments from 2012-13. Retail and corporate customers use all the above payment options quite comfortably. Check based payments, though still in use, has drastically reduced in the last four years.

Year	Monthly IMPS Transaction Volume	Value
October 2013	1,310,790	INR 1 Billion
July 2014	4,497,934
July 2015	16,586,775
July 2016	35,901,811
July 2017	72,642,842
November 2017	89,488,882	INR 782.5 Billion

Source: https://www.npci.org.in/imps-volumes

296 member banks in India participate in IMPS. IMPS has captured market share from credit cards, debit cards, cheques mode of payments.

The British Way of Payments

Here are some statistics on performance of UK Faster Payments since year 2015

Source : http://www.fasterpayments.org.uk/statistics

November 2017

• In November, Faster Payments processed 152.2 million payments, which is a 21% increase on the amount processed in November 2016.
• These payments amounted to a total of £126 billion for the month. This is a 22% increase on November 2016’s total.

Q3 of 2017

• Q3 of 2017 saw 411 million payments processed by Faster Payments, a 13% increase on the amount processed in Q3 for 2016.
• The total amount of payments processed during this quarter was £354 billion, which is a 17% increase on 2016 Q3 ‘s total.

Last Year:

• 2016 saw Faster Payments break the record for the highest amount of payments processed in a single year.
• 2015 saw 1.2 billion payments processed, whereas in 2016 the figure grew to over 1.2 billion.
• Faster Payments broke the record in 2016 for the number of payments processed in a single year.
• £1.0 trillion was transferred via Faster Payments in 2015. In 2016 however, over £1.2 trillion was transferred.
• In total, the amount processed in 2016 rose by £148.3 billion compared to 2015. This is an increase of 14%.

While the above statistics give a fair view of how instant payments have grown in a few countries, here are some strategic pointers.

Security and Convenience: The RTP Way

Customers look for three important factors in choosing their mode of payment. (1) Security (2) Convenience (3) Cost

Lets’ see how various modes of payment fair against Real Time Payments.

Payment Mode	Security	Convenience	Cost Benefit to customer
Cheque	High	Very Low	Very High
ACH	Low (mandate based repeated auto-debit)	Medium	High
Credit / Debit Card	Very Low	Very High	Very Low
Wire	High	Medium	Very Low
RTP	Very High	Very High	Very High

When it comes to electronic payments customers accord security and privacy the highest priority followed by convenience and cost benefits. Real time payments rank high on all the three factors.

Corporates may have reasons to believe that instant credit to their vendors may not particularly benefit themselves, they would surely see value in receiving payments instantly. Corporates involved in the business of getting paid upon delivery, often offer discounts to customers who pay instantly. Real Time Payments enables request for instant payments thus delivering value for the payer and the payee.

Real Time Payments in the Open Banking Era

Banks in UK are gearing up for Open APIs. Open APIs enables systems across corporates, fintech and banks to integrate tightly and thus eliminate friction in financial transaction. This development augurs very well for real time payments.  Any instant payment originated by a corporate, gets credited and is accounted and reconciled instantly between the payer’s and receiver’s systems. A compelling use case indeed for a strong, efficient straight through payment management.

In the USA too, most top and mid-tier banks have released standard APIs for their corporate customers to have tighter integration with their systems. A combination of Real Time Payments and API based standard integrations will deliver agility, security, convenience and efficiency to the corporate customer.

My closing thoughts….

 Imagine having to choose between banks, one offering the combination of API integration and Real Time Payments and the other not offering this combination. It is not hard to choose the winner among the two.

Banks as is known in the USA will go through a fundamental transformation during the years 2018 and 2019. Real Time Payments promises to be the very foundation of this transformation. Banks and corporates that adopt to it early enough will innovate and benefit from expanded market share.