TCH’s Waterhouse: Real-Time Payments’ 2021 Focus Is On Smarter, Safer

Nearly a year of trial-by-fire, pandemic-era learning within the payments business has not only provided some great lessons but has also set the stage for some major advances in 2021 that have been in the cards for years.

According to Russ Waterhouse, executive vice president of Product Development and Strategy at The Clearing House (TCH), the surge in digitization brought on by the COVID-19 crisis has accelerated the evolution of a range of RTP (Real-Time Payments) network advancements, including instant payroll, merchant settlements and tokenization.

“The promise [of real-time payments] was that it was always going to be faster, safer and smarter,” Waterhouse said in a chat with PYMNTS’ Karen Webster. “We delivered the faster part, but we haven’t completely tackled the safer, smarter part. I think this year will be about demonstrating and delivering on those two characteristics.”

As far as safety is concerned, Waterhouse focused on third-party apps. He said increased sharing of account information through third-party apps supports consumers’ desires, but it is not without its risks. Currently, actual instances of fraud are low, but Waterhouse said it’s better to be proactive.

“As the digital economy continues to mushroom, we’re seeing more and more accounts embedded in third-party apps, so the proliferation of account credentials is starting to cause an increased fraud risk,” he said. “You don’t want to see [fraud rise] in a big way before you try to do something about it.”

That “something” has a lot to do with account tokenization, which has a lot going for it as an anti-fraud tool. First, it includes an ID&V (identity and verification) process with the customer’s bank, and the token once provisioned can include controls that limit it to its specific intended use.

Waterhouse said the big evolution for the year ahead will involve taking what are now typically debit transactions like check or automated clearing house (ACH) debit and migrating those to the RTP network combining a Request for Payment (RfP) with a consumer authenticated RTP payment. This provides consumers increased transparency and control over their payments, eliminating unintended overdrafts, and reducing fraud. To further enhance the RfP, TCH is also piloting a secure document repository for bills and invoices.

“Consumer initiation, tokenization and RfP combine to deliver safer, faster and smarter payments,” added Waterhouse.

The EIP Rollout

The economic upheaval caused by the pandemic, paired with the government’s unprecedented twin stimulus responses, was also a major challenge for Treasury, the industry and a source of activity for Waterhouse and his team this past year.

The first round of stimulus payments, or economic impact payments (EIPs), was far from perfect, as the government’s primary objective was to get the money out the door quickly. While there were mistakes and other problems that could have been prevented with better ID and account verification or augmentation of sequential batch processes of ACH by using the RTP network, there simply wasn’t the time, nor understandably the desire to introduce untested processes. Financial institutions (FIs) supported customer needs with everything from ACH account repairs, cash logistics and check cashing during a period where the pandemic severely constrained them.

With the second round of EIPs there was an even greater sense of urgency to make the payments, which resulted in an unprecedented 113 million payments, the highest volume day ever on ACH.

“I was a little surprised because this is something that actually worked for the most part in round one, then some things broke,” Waterhouse noted, pointing to a last-minute change of approach to payments intermediated by tax preparers. This has resulted in some delays and consumer confusion.

Whether a third round of stimulus payments will be made remains to be seen, but Waterhouse said that no matter what happens, there will be continued dialogue between TCH and Treasury about how to modernize disbursements using the RTP network in the future.

“[Treasury] certainly understands and wants to be progressive in terms of their thinking, while at the same time acknowledging that modernizing [their systems] is hard,” he said.

Payers Now Recognize The Need For Better, Faster And More

At a time when financial transactions were already setting and testing their speed limits, new areas of progress continue to emerge, especially as a result of the many pandemic-related lifestyle changes. One such development is the growing interest and awareness on the part of payers to get money into the hands of small business owners more quickly.

“The merchant settlement use case for the RTP network is probably one we never saw coming,” Waterhouse said.

However, with U.S. Bank, Elavon, Square and others turning it into a competitive advantage as a response to businesses that were in critical need of cash flow, he said merchants became more responsive to the idea. Similarly, payroll on demand is another use of the RTP network that has gained major ground and recognition recently, with the announcement that Paychex is using the network, and more employers such as PayPal are embracing an on-demand payroll model.

In fact, the growing adoption and usage of the RTP network has already become so normalized that Waterhouse said the transaction volume gap between Fridays (the busiest day) and Sundays (the slowest) is now only about one-third lower.

“It’s just becoming the norm,” he said. “We expect everything to happen instantly, so that has now become the price of entry. The RTP network is uniquely positioned to support payments innovation in the digital era.”