For Merchants, Why Real-Time Payments Are Not Ready For Prime Time

As 2020 rushes closer, in payments, the excitement seems to be all about real time. So far, at least, the reality falls short of the excitement — though maybe not for too long.

In an interview with PYMNTS, Sarah Adams, vice president of global product at First American Payment Systems, said, “From what I’ve seen, [it] continues to be more of a buzz than a reality. There are a couple of different ways through which you can establish real-time funding, but the cost versus the demand continues to reduce the embrace of both of those functions.”

In terms of mechanics, she noted that Nacha introduced two additional ACH windows, allowing for ACH payments to be processed in a faster manner. There is also the funding method known as original credit transactions (OCT), introduced into the market for card-based funding directly to a debit card associated with a Demand Deposit Account through Visa and Mastercard.

Thus far, she said, there are some use cases that have a need for real-time payments, including paying out insurance claims or expense reimbursements, “but we’re seeing a real delay in adoption from traditional merchants.”

Part of that hesitation has to do with actual costs, she noted, and with the processing of the payments themselves. Faster funding requires the merchants to settle their batches multiple times per day. This not only increases the cost for the merchants, but can create reconciliation challenges as well. Merchants must determine if the value of faster funding is worth the additional batch and funding expenses, with more deposit entries creating reconciliation challenges to receive their deposits, at times, just a few hours sooner than standard next-day funding.

Deciding to take the plunge into real-time payments depends on the merchant, she explained, as gaining funds on a real-time basis, even with the costs incurred, represents a net positive — versus going out and getting a bank loan to make payroll for a given week or month. Against that backdrop, utilizing push payment options may be more palatable to small micro-merchants.

While there is no dependency on the hardware to obtain access to faster funding through ACH and OCT, new hardware is entering the market that can extend new payment acceptance capabilities at the point of sale. These new capabilities are extended through the Android app marketplace or HTML5 software. Proprietary app functionality can now be extended on payment terminals, along with the traditional acceptance of Visa and Mastercard.

Merchants, she noted, will need to utilize faster connectivity with higher speeds to support higher tech terminals, new applications … and mobile payments. There’s an education gap that needs to be closed with merchants, which must be made aware that the old dial-up hardware in the field just isn’t robust enough. Merchants will no longer need to be concerned with terminal updates, as they will be pushed to the terminal automatically. Not to mention, deployment of the hardware will be streamlined, and diagnostic troubleshooting can all be done remotely through the cloud-hosted estate management system.

Looking Down The Road

The advent of new technologies — streamlining payment processes on the merchant side, and offering security on the consumer side through geolocation and biometrics — will open the door to new and potentially faster payments, Adams explained. Thus, get ready to see merchants cater to the payment preferences of consumers (including millennials) through installment and in-app payments.

“I think in-app payments, biometrics and stronger authentication is ‘what’s next,’” said Adams, “especially when you consider things from a cross-border, European perspective with PSD2 requirements and Open Banking platforms.”

She added that multi-factor authentication is relevant from an international standpoint, but will make inroads into the United States. Biometrics will gain traction at self-service kiosks, too.

In addition to multi-factor authentication, though, banks will need to leverage Open Banking and APIs to streamline and automate both security and compliance efforts, while extending alternative payment methods to consumers.

“For banks,” she told PYMNTS, “learning how to leverage the new funding options, payment apps and terminal technology — moving forward — will be key. By doing so, faster funding can become reality without the incremental fees and reconciliation challenges to merchants when the payment stays within the bank’s ecosystem.”