Real-time payments are running behind schedule at The Clearing House (TCH), which launched its real-time payments (RTP) network for the U.S. in November 2017.
Sixteen of its 25 member banks — which represent 52% of deposit accounts in the country — are active on the network. But only seven are able to send in real time, even though they account for 42% of the country’s accounts.
“TCH hasn’t seen the growth that they were expecting,” said Craig Ramsey, head of real-time payments at ACI Worldwide. He suggested banks are prioritizing the Zelle real-time consumer payments platform, which has surged in 2019, over the real-time commercial payments platform.
Some community bankers point to the low participation rate of TCH member banks as evidence that the banks aren’t interested in, or aren’t willing to invest in, a real-time payments solution that will be open to everyone.
Ramsey thinks that many banks underestimated the difficulty of moving to real-time payments and the different data requirements for the ISO 20022 messages that travel along with payments.
“One of the benefits of real-time payments is not just the speed but the depth of information the corporate can receive or send,” he said. That makes reconciliation easier, but makes the data more important.
10 Seconds of Processing Time Won’t Cut It
Banks that had expected their payment hubs to adjust easily to RTP.
“A lot of those payment hubs were introduced 15 to 20 years ago and are often batch-based,” said Ramsey. They won’t work for real-time payments, when the bank may have to process hundreds of thousands of payments per second.
Latency is key. A user who is staring at her phone for 10 or 12 seconds to see whether a payment went through is going to cancel it, he said.
In reality, a payment has to finish in a second or two for a consumer to be satisfied, which means the bank has a couple hundred milliseconds to work with it internally.
“Those batch hubs of 20 years ago are not fit for purpose,” Ramsey said.
ACI Worldwide often works with banks to identify areas that are too slow and then develops solutions, such as modern wrappers, that don’t require the expensive and complex task of replacing a payments hub.
That often requires convincing banks that moving to real-time is not an easy task that can be done internally.
“They can end up with solutions that are unreliable or can’t grow. That is why you see banks sign up for RTP and they go live with receive only. Receive is easy; they do it already. Sending real-time is a different animal,” Ramsey said.
Downtime? Does Not Compute!
Sending requires customer authentication and determining whether their account has the money to send, which can be a challenge because a lot of core bank systems are not running 24x7.
Ramsey said it is common for core systems to have at least half an hour of downtime. “Because the RTP solution is meant to be 24x7, you have to manage a shadow balance to allow that 24x7 authorization.”
Fraud protection needs to be both fast and sophisticated.
Ramsey added, “You need real-time scoring of transactions, similar to what a lot of banks have already done with credit card portfolios.”
TCH says that some core processing vendors, such as Fiserv, FIS, and Jack Henry & Associates, are preparing to link the smaller banks and credit unions they serve to the TCH platform later this year or sometime in 2020.
Real Time’s Really, Really Fast Adoption
Real time is just the expectation in payments, especially among young people, said Ramsey.
Once real time is available, it can explode.
Sanjay Gupta, executive vice president at ACI Worldwide, said real-time transactions in India started with a few million per month, grew to 200 million a month last year, and is now upwards of 700 million.
“The U.S. could see trends like that,” he added.
But only if the TCH banks and core tech vendors get connected.