Faster Payments Have Arrived — Now What?

By Tina Giorgio 

Faster payments have arrived. With Same Day ACH volume growing 88 percent in the first quarter of 2021 and The Clearing House’s Real-Time Payments (RTP) Network reporting technical connection capabilities for upwards of 70 percent of all demand deposit accounts  in the country, we’ve moved beyond the preparation phase and are well into implementation.

Accelerated by the pandemic, the growth in digital and contactless payments has pushed consumer and business expectations toward the real-time movement of money.

But how does this impact the community bank mindset for faster payments?

“There’s a recognition by community banks that incorporating instant payments into their payments strategy is essential,” ICBA Senior Vice President, Payments and Technology Policy and ICBA Bancard Senior Vice President of Industry Relations Deborah Matthews Phillips said. “If their customers can’t receive a real-time payment, they’re going to find a bank who will offer them [one]. The future is happening now.”

I sat down with Deborah, who also serves as vice chairperson of the Faster Payment Council’s Board of Directors to get her take on the latest developments in this space. What follows are highlights from our conversation.

Tina: Let’s talk about FedNow. The Federal Reserve has been moving quicker than we originally thought they would; it feels like every week there’s a new announcement.

Deborah: I’m pleased to note that the Fed accelerated their initial timeline from 2024 to 2023, and I hope that decision was spurred by advocacy from ICBA, our state associations, and our community bankers who did a tremendous amount of outreach. ICBA has always been a strong, vocal supporter of FedNow, to ensure that all community banks have access to a ubiquitous instant payments network.

A recent Fed Town Hall revealed more about the various services that they are going to roll out. Many community banks are participating in the FedNow pilot as well which will offer valuable feedback to help the Fed determine how to best accommodate the community bank model.

Tina: Even with that momentum, a lot of community banks are having trouble deciding if they should wait for the Fed, join TCH’s RTP Network, or both. What are your thoughts?

Deborah: That’s a tough question because some community banks have passionate opinions about waiting for FedNow. But I think community banks will need both. Some community banks are already jumping into real-time payments and are receiving RTP transactions while preparing to send and receive FedNow transactions. This gives community banks a chance to learn the instant payments landscape, assess operational changes needed, and shorten the learning curve for when FedNow is available.  

Solution providers are beginning to offer payments hubs that provide intelligent routing of instant payments, with RTP and other payments systems today, and in the future, with FedNow.  

Tina: That’s a good point. So, what do you think that sort of interoperability will look like?

Deborah: There’s a lot of buzz and a lot of misconceptions. People talk about interoperability and think it’s connecting two networks with a technical framework, but there are a lot of ways to achieve aspects of interoperability. The fact that the Fed and TCH are in conversations and that they’re both using ISO 20022 is encouraging and supports consistency in standards and processes across various networks. There’s a lot more information we need before we can say we have interoperability, but I understand the Fed and TCH are working on that.  

Tina: With all that in mind, where do you see the community bank opportunity for instant payments?

Deborah: Recent studies validate the importance of instant payments. There’s growing demand from both consumers and businesses. According to a new study, 24 percent of consumers say they would switch financial institutions for access to instant payments.

What’s more, instant payments are about more than just speed. It’s really important to recognize what instant payments do for the end users. For example, for small businesses it’s important to recognize the role of faster payments in their cash flow, which is their life blood.

Because instant payments are real-time, irrevocable, credit-push payments, they provide an aspect to small businesses’ cash flow that helps them stay resilient.

For community banks, it represents a potentially new revenue stream: one study noted small businesses indicated a willingness to pay an average of $10.50 per transaction. That represents real value both to the small business and to community banks.

For more information and resources on faster payments, visit ICBA’s Faster Payments Resource Center. To explore where faster payments fit in your payments strategy, leverage ICBA Bancard’s Payments Strategy Assessment Tools.