The “state” of — well, anything — refers to its condition, the attributes and even the state of “mind” that denotes where we are at any given time on an endeavor. Might the state of faster payments be described as “conflicted?”
Consider the sheer number of rails that exist today, where financial services infrastructures in the U.S. may be perceived as being a bit behind the demand of consumers. After all, we live in a world that is always on, and where we expect instant satisfaction.
That can be a problem when, by and large, payments as an industry still operates through what might be termed as “a batch process.” However, the industry is evolving — quickly — to embrace speed, and it is expected for there to be as many as 56 real-time payment schemes live or underway by the end of next year.
Stateside, more recently, the Federal Reserve has thrown its hat in the ring, seeking commentary over real-time payments, with support already from Google and Amazon, as documented in this space. NACHA and Same Day ACH debuted EXACT DATE to enable same-day settlements through three settlement windows, and are currently exploring options to extend that availability on weekends and holidays. Visa and Mastercard, via their debit rails, enable real-time push payments in support of a number of peer-to-peer (P2P) and business-to-peer (B2P) use cases.
For the financial firms and service providers in the midst of embracing faster payments, seeking to speed transactions over various rails, there’s heavy lifting involved — and a road to travel before funds make the leap of settling in bank accounts over seconds rather than hours (in the case of Same Day ACH), or even days.
In an interview with Tim Ruhe, vice president of business development at Fiserv, he told Karen Webster we are right where we need to be.
“Even if you take faster payments out of the equation, there are a number of rails,” he said. “Maybe if you had woken up one day to design faster payments from scratch with no legacies, you would be able to design one perfect system, ... but that is not where we are. Now, we have checks, we have wires, we have ACH. They each have a purpose, and they each have certain things that they are really good at, and you wouldn’t want to change them. I would say the same thing about a lot of the faster [payment] rails.”
Where We Are Now
Ruhe stated that it’s still in “the early innings” of what he termed a “very important, very transformational and pretty exciting game. We're not at the end; we're [toward] the beginning. But we're well on our way, and we've [already got] some early successes that I think are very encouraging.”
He pointed to Zelle, the U.S.-based digital payments network that has gained traction among individual customers and, of course, a growing list of participating U.S. financial institutions (FIs). Use cases are evolving. For example, the Uber driver can get paid across a debit card, jump into their car for an hour-long shift and effectively use the car as a rolling ATM — to be paid, then use those real-time payments to buy gas or sundries as needed.
As for forthcoming offerings, he said that The Clearing House’s (TCH’s) own efforts to connect banks with real-time payments will use customers’ routing and account numbers as a foundation, but with a difference: “They've gone the extra mile, and they've added two [more useful] messages in there that we can all take advantage of — like request for payment. It’s another set of capabilities, but the older ones do not go away.”
Thus, the needle moves from mere transactions to interaction, he said. As that needle moves, and as the groundwork is laid for faster payments, Ruhe explained that it’s important to discuss just what faster payments means — in concept and execution.
As Ruhe offered: “Faster payments can just mean electronic instead of check. Faster payments can mean same day; faster payments can be real time. Increasingly, I think you know the expectation around faster payment is real time. And some of it is dependent on that activity you're doing,” which in turn boils down to use cases.
He said that when an individual is paying a bill, and is told instantly that the payment will be posted today, and that their account will not be marked late, “well, that feels right,” he told Webster. In another case, if a business is making a payment, in some cases, it will want instant settlement. In other cases, same day is good enough.
Yet, no matter the distinctions of when transactions are finalized, security and reliability are always top of mind. Traditional FIs stand out here, said Ruhe, as trusted providers that have a long history of being regulated, and for being effective in moving money.
The flip side, as Webster added, is that when payments are done instantly and on demand, they are irrevocable. Ruhe stated that FIs have an advantage of knowing who their customers are (through know your customer [KYC] and anti-money laundering [AML] efforts) and, thus, can prevent fraud.
The Use Cases
Demand from the FIs that Fiserv interacts with has been prioritized, Ruhe said, with the initial focus on P2P payments. “There is a natural sequence that comes right behind that,” he said, “with things like transfers and payables, and disbursements.”
On the merchant side, for example, a restaurant can pay workers based on weekend sales.
“You have organizations,” he added, that are able to lure workers with the promise that “you want to come work for me ... because you can get paid on your terms and not mine.”
When asked about the type of institutions that are thinking about faster payments and real time, the executive said the default assumption is that only the larger institutions have invested in, and can enable, faster payments. That’s not the case, Ruhe maintained. To democratize access to faster payment capabilities for smaller firms, a partnership model (such as with companies like Fiserv) ensures that “part of that is making these solutions easy to implement and consume,” he said.
“There’s always some work that goes into it,” he explained, “but rather than a big, heavy [technological] lift … to take the software and make it work, we really deliver turnkey [capability] platforms and Software-as-a-Service processing services so that there's really less that the financial institution has to do.”
He added, too, that the trajectory being followed is not “dissimilar from the adoption of web banking, or the adoption of mobile banking. There's always an adoption curve, and we are spot on that curve.”
For FIs, embracing a seven-day-a-week, 24-hour-a-day model is imperative — if the opportunity is missed, he cautioned, “then you've lost the digital engagement; you've lost the ‘next generation’ relationship. If you can’t serve the need of those customers with the faster payments they expect, they will go elsewhere.”