A collaboration between financial technology companies and banks will drive the adoption of a real-time payments system in the United States.
What Are Real-Time Payments?
Debit and credit card transactions are not real-time payments. A true real-time payment is one in that moves funds almost instantaneously from one bank account to another. This service needs to be available all day, every day for it to be considered real-time.
A Start But Not Enough
In 2017, The Clearing House (TCH), the large banks’ cooperative, introduced a real-time interbank payments service. TCH and the Federal Reserve are the only traditional ACH and wire-transfer operators in the U.S.
The problem here is volume. Only a very small number of transactions are occurring through this system because some institutions are in receive-only mode or are still being phased in. For this system to be meaningful, payers and payees must be moving to new real-time payment types of services.
What Is the Problem?
This process is slow due to lack of regulation and many do not really understand the opportunities this type of system presents. Most are caught up in the idea that people are already happy with credit and debit card transactions, thinking they are real-time payments. This misconception needs to change.
Another major issue is the current payments industry landscape. Some of the major players are having a difficult time adjusting to a sector that includes services from pure technology companies, like Apple, P2P platforms, like Zelle, and the host of other non-bank institutions.
What Needs to Happen with Real-Time Payments
For real-time payments to succeed in the United States, everyone must be educated on the systems and how they operate, as well as the benefits. The idea of just plugging a bank into the network, isn’t going to be the answer everyone has been waiting on.
New real-time payment service systems need to be created, while financial technology companies prepare to educate consumers and other players in the market about these systems.
Benefits of Real-Time Payments
Consumers love real-time payments because they are fast, convenient, and definitive. There are benefits for merchants, as well, including:
- It provides a competitive edge
- It offers better control of working capital
- It provides monetization opportunities for banks
The process will be slower than everyone would like. But, keep in mind, it took the UK eight years to reach one billion payments per year on their Faster Payments network.
Change takes time, but it is possible when all of the players align together. The process will move quicker if fintechs take the wheel by providing education and offering to work with banks and not stay uber-focused on connectivity and processing. Banks also must accept that they need fintechs in order to move ahead.
Truth be told, consumers aren’t going to stop wanting real-time payments. It’s up to all parties to act now.
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