US real-time payments are headed to ubiquity. Are banks ready?

By Robert Mancini, head of payments, Americas, Finastra

April 10, 2019 | Finastra

In 2017, the US joined the global move towards real-time payments (RTPs) with The Clearing House’s launch of the RTP system. Rapid take-up since then among the largest banks means the system now covers almost half of the total demand deposit accounts in the US. However, volumes remain low and many banks are still not connected.

So, what’s the current state of play with real-time payments? And what are the growth projections? The top-line findings in a new Aite Group research report, Real-time Payments: Linking Adoption & Connectivity, shed light.

Based on current trends in the US and past experience in other markets globally, demand for real-time payments will continue to grow among business and corporate bank clients across the US. And volumes on the RTP system will take off over the next 12-24 months, as more and more banks build on their initial ‘receipt’ capabilities and start to offer full payment initiation to their customers.

The implication? Banks should make full and active participation in RTP an urgent priority. The longer they wait, the harder time they’ll have trying to catch up with early adopters.

By way of evidence, let’s take a few figures from the report. The complement of 12 banks live on RTP at the start of 2019 is projected to double to 24 by the end of the year. That may not sound like a massive increase, but it will bring the proportion of demand deposit accounts able to transact in real-time through RTP to 70%. And further rises in connections will likely take that figure to 90% by the end of 2020, putting ubiquity within reach.

What’s more, with—as the report highlights—a critical mass of 50% of banks now planning to offer both receipt and initiation on RTP, transaction volumes are also set to grow strongly. And as rising numbers of businesses become accustomed to the speed, convenience and efficiency of both receiving and initiating real-time payments, what bank would want to tell its customers it can’t offer these services?

For banks that haven’t yet joined RTP, the message is clear: get on board now.

So, what do banks need to do? The first step towards reaping the full benefits that RTP offers is implementing connectivity. Once a bank has established its connection to RTP and implemented the “receive” functionality for RTP transactions, the journey to a payments initiation capability becomes quicker and easier. With initiation in place, the bank is well positioned to develop and deliver compelling new services for customers.

However, banks have a choice about how to implement their base connectivity. Since it isn’t feasible for every bank to connect directly to RTP, many are deciding to do so via one of many third-party service providers (TPSP) now offering such a service.

Interestingly, the TPSP option is being chosen by a growing number of banks: our study shows that, shortly after the launch of RTP, only 20% intended to take this route—a figure that’s since leapt to 43%. Connecting through a TPSP is proving especially popular among smaller institutions. Over half (57%) of banks with less than $15bn in assets have decided they’ll connect via a TPSP.

However, whichever form of connectivity a bank chooses to implement, it must first overcome a number of hurdles. Among these, a business case must be created; the client demand for real-time capabilities validated; a clear and realistic technology strategy developed; and dedicated resources allocated for the project.

By selecting the right external partner, a bank can equip itself to tackle these challenges more quickly and effectively. A good partner can take over some of the heavy lifting around back-end technology requirements, freeing up valuable internal resources for training, education, and customer launch.

The report also shows that smaller financial institutions are especially anxious about the challenges around STP connectivity. So it’s little surprise they often stand to benefit the most from selecting a trusted partner.

But whatever their size, whatever challenges they face, and whatever connectivity method they choose, the immediate priority for all banks should be linking up to RTP. Real-time is the future of US payments. And those that hold back now risk being left in the past.

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