Real-time payments: 100 percent adoption by 2020?

A year after The Clearing House launched its RTP platform, how is adoption going?

By Beth Mattson-Teig

As The Clearing House (TCH) prepares to celebrate the one-year anniversary of its Real-Time Payments platform (RTP), the milestone is pushing community bankers to take a closer look at their payment strategies and important next steps.

New York-based TCH was first out of the gate in developing a ubiquitous rail or platform to support fast payments with transactions that are completed in a matter of seconds. RTP launched last November with six large banks as early adopters. A seventh bank, $221.6 million-asset BB&T Bank in Winston-Salem, N.C., has since joined the network.

After a year of learning and testing, RTP is preparing to move to its next phase, where it expects bank participation to accelerate. “We think it is a game-changer, and we are looking forward to working with all of the banking community,” says Steve Ledford, senior vice president of products and strategy at TCH, and lead on the RTP effort.

Industry prepares for change

As of July, there were numerous new banks in various stages of onboarding and preparing to join RTP, including the first community banks. Ledford expects that most of the major banks in the country, and as many as 100 other financial institutions, will be live on the network by the end of the year. TCH is still on track to meet its original goal of bringing all U.S. banks into its system in between 2018 and 2020.

Quick stat


Percentage of U.S. banks that will enter the TCH system by 2020

An important catalyst in the movement toward real-time payments was the release of the Federal Reserve’s final report from its Faster Payments Task Force in July 2017. The report offered recommendations to enhance the speed, efficiency and security of the U.S. payment system. “What that did was it really showed that there is a consensus in the country that we are going toward faster payments,” says Ledford.

RTP and the broader financial services industry continue to put important building blocks in place to develop effective and efficient faster-payment systems. Another rail alternative is ACH, which currently processes its Same Day ACH transactions. It remains to be seen whether additional rails or platforms emerge, including one that the Federal Reserve introduces. Core processors and other third-party providers are developing solutions that will allow banks to connect into RTP and offer their customers faster-payment products and services.

Consumer expectations

The financial services industry recognizes that it has to do something related to fast, real-time payments, because it’s what today’s consumer is expecting, says Kathy Strasser, executive vice president, chief operating officer at River Valley Bank, a $1.3 billion-asset bank based in Wausau, Wis. Strasser serves on ICBA’s Bank Operations & Payment Committee and on the RTP Advisory Committee. “From a high level, I applaud our industry pulling everything together on the Faster Payments Task Force to try to figure out how to achieve this,” says Strasser.

Yet some community banks are cautious about joining RTP given that TCH is owned by the country’s 11 largest banks, which already control about half of the deposits in the U.S. They are also waiting to get additional guidance from the Fed, and some are waiting for more insight on how well RTP works. “We’re kind of in a ‘wait and see,’” says Strasser. “Is it going to work? What are the issues that they are dealing with? How do they deal with fraud? Are there any regulatory issues? There are just so many questions, and we have to be able to feel confident that we are managing the risk of our organization.”

The chief task ahead for RTP is working to get the rest of the TCH membership on board, which will help drive initial volume. The next task is to further relationships with the core processors and other third-party providers, and reach almost 12,000 community banks and credit unions that way. “There are a lot of questions on how exactly to make it work, and there is education that needs to be done,” says Ledford.

In addition, real-time payments is not just a technical issue. It affects different areas of a community bank, such as audit, risk, compliance and frontline staff, as well as the products and services that banks offer. So, says Ledford, it is important to bring different areas of the bank into the planning process.

The RTP rail is likely to be the “tip of the iceberg,” with core processors and applications being developed to plug into the RTP and other rails, says Cary Whaley, ICBA first vice president of payments and technology policy. Certainly, there are still questions that need to be resolved. “Once this faster-payment ecosystem is in place and can smoothly interoperate, you’re going to see a lot of creative payments technology emerge from it,” Whaley says.

Waiting for Fed input

ICBA is pro-faster payments and has been supportive of the Fed’s work in faster payments. “Access is always the issue in payments, and we think that every bank should have a gateway into payment systems,” says Whaley. Last April, ICBA wrote a letter to the Federal Reserve, asking it to consider three roles in payments:

Play a similar role that it is playing in check and ACH.

Serve as a gateway or on ramp to RTP by leveraging the Fed’s own connections to community banks rather than waiting for core providers to develop software.

Consider hosting directories that route transactions easier, which would put the infrastructure more on the community bank side and less on the core processors’ or clearing house side.

“One thing that the Fed heard loud and clear is that the industry is waiting on them.”
—Cary Whaley, ICBA

The Fed is currently preparing a report on its operational roles that should be released later this fall. Before deciding on next steps, community banks are likely waiting for that report to come out, as well as waiting for more volume from RTP and for TCH members to adopt RTP. “One thing that the Fed heard loud and clear is that the industry is waiting on them,” says Whaley. “So, they needed to move quickly, and I think they are prepared to have those reports and recommendations by year’s end.”

Beth Mattson-Teig is a writer in Minnesota.