It’s been three years since The Clearing House rolled out its Real-Time Payments (RTP) network, but Mark Ranta, payments practice lead at Alacriti, tells PYMNTS that 2021 will be the year FIs migrate to the technology in record numbers. Only if, he says, there’s better alignment between the bank bill-pay model and the biller-direct model. Here’s why.
It’s been three years and a pandemic since the official rollout of The Clearing House’s Real-Time Payments (RTP) network, but the next 12 to 18 months will likely see financial institutions (FIs) migrate to this technology in record numbers, Mark Ranta, payments practice lead at Alacriti, told PYMNTS.
“I am in the camp that thinks 2021 will be a big year for real-time payments, and I think we’re going to see a lot of banks and credit unions finally getting live on the network [and] sending messages through the system,” Ranta said.
But he said making that happen will require greater cohesion between the two dominant payment models currently in place — the bank bill-pay model, and the biller-direct model. Ranta said bringing those together will require collaboration and seamless information transfers between FIs, billers and consumers.
And that, in turn, will take a holistic effort supported by an open application programming interface (API) setup that allows for information sharing and integration.
“There’s something to be gained for [FIs, billers and consumers] in that experience,” Ranta said. “Not one, but all three can win.”
But he said such an integration can only happen if correct and complete billing information is shared at a structured, usable data level versus the common practice of attaching a PDF image of a bill.
Making Real-Time Payments A Reality
Real-time payment rails were launched in 2017, but the reality of those transactions was vastly different for consumers and FIs.
“As consumers, we’ve had experiences that were real-time payments to us, but they weren’t actually real-time money movement within the system,” Ranta said.
Consider a typical credit card purchase. A consumer swipes their card and walks away with their goods thinking that the payment is complete.
But in fact, the money doesn’t actually leave your account or settle in the merchant’s account until well after the transaction has happened. Although unseen and unnoticed, Ranta said that time lag matters — a lot.
“There’s a lot of cost that goes on with that,” he said, pointing out that the “lack of real-time money movement actually ends up making things a lot more expensive.”
Ranta said it’s important to re-educate consumers and merchants about the invisible back-end processes involved, or what he calls the “entire spaghetti network of payments that underpins all of the experiences we have today.”
Building New Systems While Maintaining Legacy Ones
Ranta said FIs must currently support networks built over the past 40 years while also trying to build new systems, slowly shut the old ones down and migrate everything over.
“I don’t envy the situation that a lot of financial institutions are in right now,” he said. “It’s really hard to meet and look at future needs while still maintaining the day-to-day operations that are required.”
And yet, he said that the transformational moment is upon us, where traditional banks can now actually turn into technology companies rather than just offering “lip service” to that effect.
“I think the tools are finally in place to make that real,” Ranta said. “You’re seeing pretty massive IT spend and massive overhaul for these transformation projects.”
He said U.S. FIs can learn and take advantage of what’s already happened in parts of Europe.
“When you factor in these amazing advances that we’ve seen from a technology standpoint [in Europe and the U.K.], being able to do it cheaper, faster and better is something that's definitely sitting out there for us,” Ranta said.
Reducing ‘Technology Debt’
Ranta said the arc of innovation needed to reduce FIs’ so-called “technology debt” has already started, but the next “broad leap” will require much more openness toward the use of outside developers.
“We’re going to have to open the doors to people that we wouldn’t necessarily invite in or reach out to because the value that’s going to be created is from folks who don’t think like bankers, who don’t think like financial institutions,” he said.
Ranta likened the huge untapped and underutilized data troves that FIs have to “oil in the ground,” and that unlocking and extracting value from that data is going to be critical.
But he said getting there will require an educational push, as well as working on the front lines to make sure that businesses, consumers and merchants each understand the value and savings offered by moving money faster.
“I think we’re just scratching the surface of that being possible,” he said. “But once you light that fire, it’s going to start burning pretty hot.”