Consumers know the drill. Get a phone bill, send a check, time when the check reaches the provider, estimate when it gets deposited, and estimate when the funds clear. (Mental note: Will you have enough in the account?)
Or make a debit payment with the three- to five-day window of when the funds will be taken out always in the back of your mind. (Mental note: Will you have enough in the account?)
It’s the mental calculus that comes with daily financial life — and real-time payments can take away some of those financial gymnastics. To that end, Early Warning Services (EWS) and The Clearing House (TCH) reported Thursday (Feb. 25) that Zelle transactions are now able to be cleared and settled over the RTP network.
That instant settlement that RTP brings to Zelle transactions, according to Steve Ledford, senior vice president of product strategy and development at TCH will lead to a plethora of new use cases for clients of financial institutions (FIs) offering Zelle. As Ledford told Karen Webster, real-time settlement will be key in broadening the reach of digital payments.
Bank of America (BofA) and PNC Bank are the first FIs to send Zelle payments over the RTP network, with additional FIs coming on board later in the year. For corporate customers of the FIs (both sending and receiving), the benefits of sending payments and Request for Payments (RfP) through electronic means quickly accrue in the form of simplified back-office processes and lower costs tied to printing, stamping and mailing checks and invoices.
Prior to real-time settlement availability, Zelle transactions have been (and still are being) transmitted from sender to receiver in real time, but interbank settlement has occurred through automated clearing house (ACH). That translates into a lag time before funds settle, even though the customer gets immediate access to funds.
The February news comes after a proof of concept announced late last year showed faster settlement works exactly as designed.
As Ledford related, “What we wanted to do with the pilot was to make sure the process would work. We were able to test a few things at once.”
As part of that testing, several banks, he said, used Zelle account names to send requests for payment, which can be used in bill payment applications and to send bills to clients at other banks.
“But you could use a Request for Payment with just about any kind of bill that you could pay, either through a bank bill-pay system, or through a biller direct mechanism,” he told Webster.
Hitting The Sweet Spot
At a high level, he said, what TCH and EWS are seeking to do is “hit the sweet spot in terms of giving the biller, and the bill payer, the control that they want.”
Now, he said, RfPs can be addressed using account numbers and routing numbers in addition to Zelle account names (which are widespread as a growing number of people and firms interact with their mobile devices to send and receive payments).
“It’s a perfect combination of the strengths of the two offerings,” he told Webster.
Enterprises and consumers, especially, he said, are keen to have control and visibility into exactly when a payment is made. After all, cash flow management boils down to paying some obligations on time, some a little late — and some of them even before the due date.
Senders, he said, can send payments that settle within a second or two.
“This gets rid of the ‘mental calculus’ of making payments,” he said — and payments can be made 24/7/365.
Working directly with billers and being able to see (and satisfy) a range of obligations in one place, especially through a mobile banking app (which one can picture as a command center of sorts) that is in everyday use, can make the process simpler. In terms of the mechanics, he said a hypothetical BofA customer will, as has long been the case, be able to make P2P payments.
With RfP, “if you were a customer, one of the things you’d be able to do is, if your biller does not have your account number, but they have your phone number, email address or Zelle alias, they will be able to deliver this RfP for whatever bill it is that needs to be paid,” Ledford said.
The biller does not have to have payment credentials on file (which reduces risk).
On the subject of security, “We’re looking at forms of tokenization where the credentials can be replaced with something that can only be used for a limited purpose, like delivering a request for payment or making a payment. This is just part of what you want to do when you’re operating a modern network,” he said.
Ledford noted that there are multiple ways a biller can connect to the instant payments capabilities.
“Typically, they’re going to come in either through a bank or a biller service provider, and this would be probably one of the same providers who is already helping them with billing services, whether it’s biller direct or a lockbox,” he said.
Both the biller’s FI and the bill payers must be part of the Zelle network if they are using Zelle account names.
“One of the things we’ve already found with the payments that folks are already sending and receiving on the RTP network is that the instant and certain nature [of the payments] is immensely satisfying,” Ledford told Webster.
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