The Clearing House Beat the Fed to Real-Time Payments. Now What?

Steve Ledford, senior vice president of product strategy and development for The Clearing House, oversees the association’s Real Time Payments (RTP) platform. 

The 25 banks that are members of TCH are now 24, following the merger of BB&T and SunTrust. And a growing number have gone live on RTP, usually starting with the ability to receive payments, which is easier to implement than sending payments. 

Steve, how many member banks are now active on RTP?

We actually now have 21 banks on the system. In addition, more of the banks that were already on the network are introducing the ability for their customers to send — 12 banks give commercial customers the ability to send.

Are non-member banks on the system?

You will start to see the number of banks escalating soon. The biggest banks are on the network already, but now Jack Henry has 15 FIs coming on the network over the next quarter or two. When those start being added, that will much more quickly increase the number of FIs, bringing in community banks and credit unions, as well as regional banks.

How does linking to RTP for customers of core providers like Jack Henry differ from TCH member banks?

In contrast with some of the banks that have joined to date, which are either implementing their own gateway inside their infrastructure or going to a third party, they are having to do a lot of interacting with their back-end system to make that happen. But the model used by Jack Henry and many other core providers is that anyone on their core systems can join the network without doing a lot of tech integration. The processors are implementing a connection to anyone on each of their core systems, so if you are on Silver Lake from Jack Henry or IBS from FIS, among others, then the moment they integrate, you are able to go to a sign-up process and start receiving payments on RTP service. 

(To send, FIs will usually need to RTP-enable specific services, such as online banking, commercial payments, etc. with their vendor.) You could argue they, the core system providers, are pre-wiring their customers to use it. 

There are also other third-party providers offering access to the network, folks like PayFi, Volante, and credit union service organizations like Sherpa Technologies and Computershare (a transfer agency that handles employee equity plans and mortgage servicing).

“WE THOUGHT WE WERE PRETTY SMART A COUPLE OF YEARS AGO WHEN WE CAME UP WITH BUSINESS USES WE THOUGHT WOULD DRIVE [RTP], BUT NEVER IMAGINED HOW IMPORTANT PAYROLL OR DIGITAL WALLETS WOULD BE.

What are the business uses of real-time payments that you are seeing?

Banks are offering send services to their commercial customers as a treasury management service. We are also seeing very creative uses, such as just-in-time payroll. Companies are using this as a way of more efficiently and precisely managing their cash, which frees up more working capital.

Any surprises in how RTP is being used?

We thought we were pretty smart a couple of years ago when we came up with business uses we thought would drive it, but never imagined how important payroll or digital wallets would be. 

When you have a payment mechanism that is fast and also very precise in timing, and you have a great deal of certainty around it, that allows you to carry information in ways that traditional payment systems don’t. 

Is RTP a driver or a beneficiary of innovation?

Instant payroll didn't even exist as a concept a few years ago, and now it does. The timing couldn’t be better — historically low unemployment, and a battle for talent. One of the ways to attract talent is to pay them the way they want to be paid. 

I have had numerous folks in conferences tell us they were driving down the road and saw a sign at a fast food restaurant: “Come to work here today, get paid today.” It is an important way of taking care of what is probably the most valuable part of your business — your employees. 

This is an alternative to payday loans. It’s a way FIs are contributing to the better financial health of the receivers, and it enables better financial health of those who are paying because they can retain employees. It is good for the financial services industry, and it is also just good for the economy.

Any industries where real-time is making a big difference? 

I have learned more about the fresh seafood business than I ever thought I would, and learned how much is being done with cash exchanged on the dock. Everyone in the chain is looking for a better way of doing it — all the way from the boats to the table — to become a much more efficient and less risky process than it is now.

Has the announcement of the Federal Reserve’s real-time payments, FedNow, frozen the markets?

No. Since the Fed announced on Aug. 5 they would launch FedNow in 2023 or 2024, we have had an upsurge in banks and credit unions saying they want to join the RTP network. I think that until the Fed announcement there was uncertainty. Now the folks know that yes, the Fed will launch FedNow, but it will take a few years for it to get here. Folks like what they are hearing about real-time payments, and they will go to the folks who are doing it now.

What’s next for RTP?

We are going to be coordinating among a number of FIs next year for using the RTP network to both present bills and have them paid over the network — a request for payment, not a debit. It can be linked to a consumer bill or invoice. EWS, operator of the Zelle network, is also participating in the pilot.

The U.S. has 30 billion bills paid every year, and a lot of firms would like something different from biller direct or paying through your bank, which you have to set up ahead of time. Billers are excited about reducing the number of late payments or payments they can’t apply because of bad information.

Won’t companies miss the float?

No. Float is something that happens after you make the payment, and there is uncertainty involved because you don't know precisely when that payment will be received and when it will be applied, and that can tie up cash. 

The real advantage of the RTP system is that the payment is confirmed in real time, so you can make that payment exactly when you want to. If it is due on the 26th, you can pay it on the 26th. 

Float adds uncertainty to the system, and that uncertainty can tie up cash because you don’t have effective use of it. Many businesses don’t have a good way of projecting what their cash will be on a given day.