December 5, 2018
Now that The Clearing House’s Real-Time Payment (RTP) rail has several major banks live, when will we start to see the United States embrace faster payments? Ubiquity and the use of APIs and overlay services on top of real-time rails can move a country toward RTP adoption – just as we’ve seen happen in other parts of the world. But when will the US stop playing catch-up?
Open Banking hasn’t been formally embraced in the United States as it has been in the UK, Europe, Singapore, and Australia. This is mainly because it hasn’t been driven by regulation or central authorities. Yet an increasing number of US financial institutions are choosing to open their APIs to better collaborate with FinTechs and compete with the innovations Open Banking brings forth in other parts of the world.
Over the past five years, we’ve seen a correlation between faster payments adoption and the extent to which a region’s rails encourage collaboration on them. When this results in the perception of enhanced user value, adoption follows.
Take, for example, India’s faster payments rail - the Immediate Payment Service (IMPS). It has been in existence since 2010, yet the faster payments transaction volume and value that takes place on it continues to grow significantly, as though the service is new. Much of the attraction stems from its Unified Payments Interface (UPI), an overlay on IMPS. This enables the initiation and collection of payments for developers; innovation is an inherent component of its real-time rail. In September 2018, a record-breaking 400 million+ transactions were processed on UPI**.**
The use of near real-time P2P payments is a necessary first step toward RTP adoption. More than 75 million tokens have been enrolled across the Zelle network to date, and the P2P service recently announced that QoQ transaction volume increased by 16%. A separate Early Warning study revealed that more than 75% of millennials, 69% of Gen Xers, and 51% of Baby Boomers in the US have used online or mobile P2P payments. All of them cited security as a very important feature and said they’d be more likely to use a P2P provider that was affiliated with their financial institution.
As more users in the US adopt P2P Services like Zelle, the population of alias directories becomes more robust. This creates a common user-friendly experience, increased comfort level, and can increase fraud prevention. With the increased adoption of RTP across banks and credit unions, the move to faster payments will be seamless for P2P customers.
If the emerging faster payments use cases we’ve seen in other parts of the world using APIs and overlay services on real-time rails are any indicator of what RTP could look like in the US, their value beyond speed will be apparent.
In countries like China, the combination of mobile device ownership and QR codes that facilitate instant payments – while eliminating the need for a physical payment mechanism and merchant point of sale terminal – have fueled the use of faster payments.
In France, a major supermarket chain allows its customers to make an instant payment at checkout using its app while reducing its own interchange fee exposure.
In Portugal, RTP and APIs allow a lender to instantly divert funds into an approved loan applicant’s account. If the US follows suit in delivering a clear What’s in it for me? value proposition for consumers, businesses, and corporates, faster payments will get a warm reception.
Following a summer of government hearings surrounding consumer privacy and data sharing concerns, customers in the US want to hear how their financial institutions will protect them. Financial institutions that share their APIs with apps and third-party FinTechs offer consumers more control over their data and information: APIs eliminate the need to exchange customer credentials or screen scrape. If financial institutions proactively communicate that RTP used in tandem with open APIs put the customer in the driver’s seat, we’ll see faster payments become the new normal.
The US may be fashionably late to the faster payments party, but we know how this journey will transpire, based on the path to adoption in countries – it begins with increased ubiquity and a sense of familiarity.
We’ll start to see new and unexpected RTP uses cases emerge in the US, and soon after, the parties attached to the scheme will begin to form a symbiotic ecosystem that starts to nudge the bar for real-time innovations higher.
Corporates will start to find that use of RTP can increase transparency and enhance liquidity. Smaller businesses will find that RTP can lead to improved cash flow and operational efficiency. Consumers will grow fond of the personalized, contextually relevant experiences RTP deliver.
At the same time, financial institutions, FinTechs, and other third-party providers will notice the impacts this response to real-time has on their business model. They’ll see why and how their future success correlates with the value they’re able to deliver with the real-time rails.
Meanwhile, the US journey on the real-time rails has already left the station. Now it’s time to see where this trip takes us.