Real-time payments recommendations

The Fed’s Faster Payments Task Force has delivered its recommendations, and pilot projects are launching imminently. Should your community bank jump on the real-time payments bandwagon?

By Mary J. Yerkes

Hot on the heels of the Federal Reserve’s Faster Payments Task Force report calling on stakeholders to make their organizations faster-payments-ready by 2020, The Clearing House (TCH) has announced it will go live with its real-time payments (RTP) pilot by the end of this year, with a rapid ramp-up expected in 2018.

“Real-time payments are growing in importance for financial institutions, particularly community banks,” says Cary Whaley, first vice president of payments and technology policy for ICBA. “We think the TCH rail has great potential for community banks, and that it’s an option to meet customers’ demands for real-time payments.”

According to Tina Giorgio, president and CEO of ICBA Bancard, ICBA is working with TCH to deliver its real-time payments solution through TCM Bank, a subsidiary of ICBA Bancard, in the hopes of developing use cases to bring TCH’s real-time payments platform to community banks. Of the 16 proposals reviewed by the Federal Reserve’s Faster Payments Task Force, TCH’s real-time payments solution will ramp up on a national scale when it goes live.

The Clearing House’s RTP platform
Steve Ledford, senior vice president of product and strategy at The Clearing House, says TCH’s real-time payments system is especially suited to community banks.

“We knew it couldn’t only be good for large banks with deep technical resources,” Ledford says. “It needed to work for any bank of any size. That was a design principle from the beginning.”

Ledford points out that many of the features included in TCH’s real-time payments system are tailor-made for the needs of small to midsize businesses, a market in community banks’ wheelhouse.

One feature that makes TCH’s platform unique is its messaging capacity, which enables the transfer of non-payment–related information. Practically, this means businesses of all sizes can use the rail to send invoices, initiate payroll, send disbursements and more.

“We knew [our RTP platform] couldn’t only be good for large banks with deep technical resources. It needed to work for any bank of any size. That was a design principle from the beginning.”
—Steve Ledford, The Clearing House

Because TCH’s faster payments system is not an end-user application, individual apps developed by banks or other providers can run on its platform, allowing banks to provide highly customized services. Imagine if a customer forgets to send a payment by its due date. Using TCH’s real-time payments platform, a community bank can send a reminder to that customer that a mobile payment is due and the customer can instantly resolve the problem, saving frustration and the inconvenience of a delinquent account and late fees.

Person-to-person (p2p) payments is another option banks can implement with TCH’s real-time payments platform. Although RTP is not a p2p service in and of itself, it does provide a structure for bank-oriented solutions, and enables banks to compete with non-banks. Customers can send and receive money directly from their bank accounts, keeping community banks at the center of their customers’ financial lives.

And there’s more good news for community banks. Although TCH has not yet released its pricing structure, Ledford says banks can expect competitive pricing. In addition, there are no monthly volume or maintenance fees, and there is no fee for receiving. From Bank of America to the smallest community bank, the price will be the same.

Other considerations
While this is good news, there are other issues community banks should consider before jumping on the RTP bandwagon. For example, prefunding is necessary for community banks that want to begin not only receiving but sending real-time payments. This requires finding a funding agent, such as a bankers’ bank or other correspondent bank, to assist with prefunding. On the positive side, community banks no longer have a non-sufficient funds problem, nor the associated back-office follow-up, which will likely streamline processes.

While TCH is first to market, many questions are rising to the surface. As more RTP solutions become available, which will prevail? Will the Federal Reserve move to provide bank settlement capabilities for faster payments or play a supporting operational role? Can community banks afford to wait based on possibilities that may or may not materialize?

“Looking back, I could have waited five years to launch remote deposit capture and still been considered pretty progressive,” says Giorgio, a former community banker. “If I wait five years to do something with faster payments, I probably won’t be in business anymore. Overall, community banks need to be more proactive about embracing these technologies as they come along.

How to get started with real-time payments

Ready to bring real-time payments to your bank? Consider these helpful guidelines.

  • Start with an analysis of your customers, products and services. What does your customer base look like? What are their pain points? What are your current products and services, and how can you change them to address these pain points?
  • Educate yourself about RTP. ICBA, regional payments associations and vendors are all available to answer your questions and offer support. Take advantage of webinars, conferences and other educational resources to boost your expertise.
  • Contact several service providers to ask about their products, services and fees. Ask whether your core processor is working with The Clearing House and confirm it is enabled for real-time payments.
  • Work with your service provider of choice to design a customer interface. Good design will make the process easier for your customers.
  • Get connected. Start with receiving real-time payments. Then, consider sending payments and expanding your services to include p2p payments.
  • Innovate. Look for gaps in your current line and work with your vendor to create new products and solutions that set you apart from the competition.

Mary J. Yerkes is a writer in Washington, D.C.