The Clearing House’s RTP Or FedNow For Instant Payments? Users Want Both

Businesses appear to be in favor of real-time payments, according to a survey by U.S. Bank, and a better payment experience is one of the top drivers. And they want to be able to choose which rails to use.

“We are building intelligent routing,” said Anu Somani head of global payables & embedded payments at the bank. “Clients can come to us for a one-stop bank and we can connect to any instant payment rail that meets their business goals.

In payment transformation initiatives planned for the year ahead, 53% want to improve vendor and customer payment experiences, 48% want to increase the efficiency of front office payment transactions and 47% want to create a B2B payment experience similar to consumer person-to-person payments. Operational interests lag slightly behind — 46% want to automate payments (e.g. initiation and billing/remittance data).

But two of the bank’s top payment experts say they are puzzled that the rate of adoption lags behind what people say they want.

Somani said she understands some of the hesitancy.

“If it’s not broken why should I fix it? Checks may not be efficient, and checks may have some of their own issues, but at least people get paid.”

It is not a trivial change, she added. Often companies have to undergo a payment infrastructure update, and that takes time, money, planning and technology.

“There has to be enough demand to drive behavioral change,” said Mike Jorgensen head of emerging solutions for U.S. Bank Global Treasury Management. Most businesses have a well established schedule for making payments.

“There has to be enough demand to drive behavior change. The traditional B2B has normal operating hours and has vendor payments scheduled for regular business hours Monday through Friday and you negotiate terms and discounts with them accordingly.”

Companies are not staffing their AP departments to work weekends or holidays to manage payments to vendors.

Back office challenges of real-time payments were not mentioned in the survey results, the two payment experts noted. It’s probably not a surprise that real-time payments are moving ahead faster in consumer than in business banking — consumers are already 24x7x365.

“Covid was interesting because it took consumers to a point where they demanded that companies operate with them differently,” said Jorgensen, “and that created real-time money movement, not just during normal hours. That required companies to change the way they interact with their consumers.”

It was easy for most consumers to operate in real-time for e-commerce because they could use credit cards. Real-time payments, whether consumer account-to-account or corporate B2B, only work if both parties have access to real-time networks. Since the U.S. hasn’t mandated real-time payments, the reach of the TCH RTP network is about 65% of deposit accounts, partly reflecting the unease that smaller banks and credit unions have about participating in a network run by the largest banks.

“I think the business-to-business payment space is still one that is ripe for innovation,” said Jorgensen. The banks, which has been using The Clearing House real-time network for almost six years, sees a lot of B2C and C2B activity.

One corporate client buys used cars from consumers at their homes.

“They need to be able to pay the consumers before they pull the car away from the house after they bought it. Real-time payments makes all the sense in the world to make sure that consumers are paid in the driveway versus two or three days later with a check or an ACH.”

Another example is funding brokerage accounts where the real-time payment rails really provide a lot of value, he added. (ACI Worldwide said it expects to publish a report soon on how some banks ae making profits from instant payments.)

“As FedNow comes on board, that ubiquity is really going to grow leaps and bounds,” said Somani. She expects to see compelling use cases as corporations and the financial services industry sees real-time as a compelling tool. It helps that the limit on RTP, which started out at $25,000, has recently been increased to $1 million, she said.

Jorgensen said treasury management will be important — corporations will have to find ways to make sure they have funds available for real-time payments.

“FedNow and RTP are not considered to be credit based products — they are all a good funds model. I think you will see cases where banks will step up to work with customers to make sure they have funds available. It could be daylight overdraft protection, very small credit lines, or maybe companies need to park more money in their bank to effect the payments. I think there could be a lot of creativity that banks and companies could go through on that topic. That’s what is going to differentiate one offering from another.”

Corporations have come to U.S. Bank and asked how real-time payments will work, what happens on holidays, how funding will work.

“We have a consulting approach,” said Jorgensen. “Funding payments has been very collaborative.” “A lot of these clients come to us to talk not just about money-in money-out, but the experience around the payments.”

The bank has an innovation studio where it can help customers build a comprehensive end-to-end payment experience, said Somani.