Real-Time Payments Successfully Gets Through Its First Test Drive

IBM Real Time Payments

The U.S.’ first new payment and clearing system in more than 40 years is up and running. At 4:59:40 p.m. on Monday (Nov. 13), $3.50 was moved between accounts at two different banks (there was only one customer with two bank accounts) via RTP, the name for a new “Real-Time Payments” system set up by The Clearing House.

All in all, the transfer took three seconds — as opposed to the hours or days more typically associated with an ACH transfer.

The first transaction, in addition to moving funds, also carried data in an invoice-like fashion to accompany requests for payments which are irrevocable. The additional transactional data is designed to make it easier for businesses of all sizes to reconcile their accounts more quickly and inexpensively.

“Business-to-business payments have been some of the most resistant to electronics,” said Steve Ledford, senior vice president for Product and Strategy at The Clearing House — a point underscored by the fact that over half of all check-based transactions today come care of the B2B payments market.

The system sees some businesses actually attaching paper checks to account files just so they can match payment with bills.

The upgrade to the system also allows the U.S. to keep pace with nations like the U.K., which has had real-time payments infrastructure up and running for almost 10 years. In other nations, faster payments plans have gotten more traction after banks were ordered by their governments to speed things up — usually after problems with the older, slower system emerged.

Progress in the U.S. has been notably slower. Four years ago, the Fed began officially turning to banks, financial technology companies, businesses and consumer groups to encourage them to find ways to speed payments. The Clearing House began work on RTP shortly after.

But the RTP systems, powered by Mastercard-owned Vocalink  — while running and testing a little — will not be “ubiquitous” until 2020 — a goal they describe as “ambitious.”

The Clearing House expects additional transactions through RTP from six banks — BNY Mellon, U.S. Bancorp, JPMorgan Chase & Co, Citigroup, PNC Financial Services Group and SunTrust Banks — in the next month. By the end of next year, banks holding more than half of U.S. deposits are expected to start using the system.

A number of smaller financial institutions are also expected to use the network with the help of processing firms, such as FIS and Jack Henry & Associates.

“You don’t just flip a switch and turn on faster payments,” said Mohammed Badi, a New York-based partner in the financial institutions practice of The Boston Consulting Group.