Nearly a Third of Banks Lack a Faster Payments Plan — and Risk Losing Customers

To quote The Bard, or more specifically, Hamlet: “The readiness is all.”

When it comes to instant payments, the question must be asked: Are you ready?

The steady rise of instant payments has marked The Clearing House’s journey since 2017 when it launched the RTP® network, the first new payments network in the United States in decades. This month, the RTP network hit a new milestone, moving past 1 billion payments, a doubling in just 18 months. New single-day records were also set for payments volume, at 1.6 million transactions, with an attendant $1.4 billion aggregate value.

Yet, there are gaps in the market. What consumers and businesses want, and what financial institutions (FIs) are prepared to deliver, have yet to meet. PYMNTS Intelligence data found that 30% of the banks that do not yet offer instant payments said they lack a plan on how to get there.

“If you don’t start with planning, you end up with nothing,” Cheryl Gurz, vice president of RTP product management at The Clearing House, told PYMNTS.

FIs not yet on the network — RTP and the newer FedNow® Service — need to start with strong project approaches, bringing teams together to create a business case for embracing instant payments.

“You cannot not be part of the instant payment networks today,” she said.

The planning needs to revolve around several aspects of coordination. There are technological considerations, as FIs pivot to straight-through processing and the messaging standard known as ISO 20022. The technical connection to the RTP network must be assured on a minute-by-minute, second-by-second and message-by-message basis.

Key Technological and Planning Considerations

Amid the technological considerations, banks need to mull whether they will bring the connections completely in-house, or whether they’ll use one of the more than two dozen technology partners that can aid with connecting to the RTP network. Gurz said the network has been providing those services to more than 800 banks.

“When you start receiving payments, you’re not going to be posting them by hand,” Gurz said. “It’s all going to be handled with the technology provider and the integration that’s already been planned out.”

While some of the largest banks may opt to take many of the instant payment functions and processes under their own operating environments, smaller firms have relatively more finite resources at their disposal, a roster that includes thousands of smaller FIs, she said.

Because the tech partners are not participants in the RTP network, and only the banks are, “having a strong service-level agreement is something I stress with the community banks and credit unions I speak with,” Gurz said.

The Use Cases

Asked by PYMNTS about the key use cases driving instant payments, Gurz said digital wallet providers are taking their share of consumer funds, and thus peer-to-peer (P2P) activity is tied to payouts from those closed-loop networks to bank accounts held at FIs. Consumers want those funds to settle quickly; in other cases, they want to move money instantly from digital wallets to their bank accounts.

“Other money movement that we’re seeing — with money being brought into the primary accounts — includes bill pay,” Gurz said.

The B2B market represents an untapped opportunity for instant payments, Gurz said, as “it’s an underserved market in business banking … This is where we need our smaller community banks and credit unions to come on board, not just to receive funds but to send.”

Smaller FIs will benefit through portal and API connectivity, enabling commercial transactions to be completed on a 24/7/365 basis, which maximizes cash flow.

Looking ahead, Gurz said the evolution of instant payments will be led by customers — and they’ll gravitate toward FIs that offer a full suite of instant payments functionality at the expense of those that don’t.

For banks that may be hesitant to sign on to the faster payment networks, Gurz offered some advice: “If you’re scared of the effort and the time [to integrate], and you make it an obstacle within your organization, your customers are just going to walk across the street” to a rival bank.