Lipis Advisors on Why US Real-Time Payments’ Usage Lags Behind Other Nations

The Clearing House - Real-Time Payments - August 2022 - Learn how companies are turning real-time payments misperceptions into true benefits

Real-time payments’ popularity has soared in the United States since the 2017 introduction of The Clearing House’s RTP® network, which offered businesses and consumers an exponentially faster way to transfer funds than legacy methods such as paper checks, wire transfers and cash. The pandemic gave the RTP network one of its biggest boosts when in-person banking and retail all but shut down, forcing customers to flock to digital payments to conduct everyday business.

Even as pandemic-related restrictions lift and businesses resume their normal schedules and procedures, organizations and consumers continue to leverage the RTP network more than ever before. This is thanks to the network’s considerable advantages over traditional systems, according to Leo Lipis, chief executive officer of payments industry consulting group Lipis Advisors. 

“The first and most obvious [benefit] is faster access to funds: It’s a real-time event; therefore, the funds are literally available within a matter of seconds,” Lipis told PYMNTS in a recent interview. “One of the other key benefits that is often overlooked is the confirmation of payment. It’s the only payment system [in which] you get confirmation as soon as the payment is made. With a card payment, for example, you’ll get an authorization immediately, but you know the funds aren’t available right away.” 

Despite these advantages, real-time payments’ usage in the U.S. falls behind that of the rest of the world. Lipis explained why this is the case and how the U.S. can encourage greater utilization of real-time payments going forward.

The Rise of Real-Time Payments in the US

Real-time payments were long overdue when they debuted in the U.S., according to Lipis, as digital technology had rendered so many other aspects of everyday life nearly instantaneous. Customers had begun to demand that their transactions be just as fast as online shopping, emails and other activities to which they had grown accustomed.

“It was all about changing customer expectations: An email takes 10 seconds to get anywhere in the world, to say nothing of a text message or a video call to your relatives anywhere around the world,” said Lipis. “The fact that payments were still taking a day or two — or longer if you were sending a check through the mail — simply wasn’t up to modern expectations.” 

Still, it was only amid the pandemic that real-time payments reached their full potential. Not only were individual consumers leveraging the RTP network on a regular basis through peer-to-peer (P2P) payment apps but businesses were also using it to pay one another for goods and services as well as to accept customer payments. 

“What’s driving [much of] the volume today is P2P payments,” said Lipis. “But the U.S. has a fair number of B2B payments flowing through the real-time payment system. The U.S. seems to be hitting on several use cases at once, which is really a great thing to be doing, as you never know which one is going to fail and [which one will] take off.” 

Despite the RTP network’s undeniable success in the U.S., other countries have been outpacing it when it comes to instant payments’ popularity.

Stacking Up to the Rest of the World

The U.S. is quickly gaining ground when it comes to real-time payments adoption, but it still trails much of the rest of the world. This is due to a number of factors, said Lipis, chief among which is the sheer size and complexity of the American financial system.

“The U.S. has been a little bit slow to the party, and I think that it’s going to take another three or five years for us to catch up to where everybody else is,” he explained. “I think the reason for this is that the complexity of the market in the United States and its sheer size make coordination really difficult. We have over 10,000 financial institutions in the United States. We have multiple competing solutions in the United States. It’s just been rough coordinating among all those different entities.” 

There are still plenty of opportunities for improvement, however. American financial institutions and industry players can deploy a number of tactics to make the RTP network more appealing to customers to encourage greater use rates. 

“You need to expand the number of use cases: The more ways you get people to use a system, the more they’re going to use it,” said Lipis. “Another key thing is going to have to be interoperability between the different real-time payment systems in the United States. You also need open banking and APIs so that you can develop a scenario [in which] third parties can originate payments with the receiver’s permission.” 

The RTP network has almost unlimited upside potential, but it has a long way to go before it reaches its full capacity. U.S. banks and businesses have a unique opportunity to help develop it to the fullest extent possible.