United StatesChange Country

FX International Payments

New Progress Towards Ubiquitous U.S. Faster Payments Services

By Bill Camarda

Two recent events herald important progress towards U.S. faster payments services. In October 2017, the Federal Reserve empowered a workgroup to recommend a detailed faster payments governance framework for the U.S. marketplace during 2018.1 Then, in November, The Clearing House announced the first availability of RTP®, its new real-time payments service intended to support funds transfer, payment requests, and information exchange for back office reconciliation.2

The Federal Reserve's Move Towards Faster Payments Services

 

The Federal Reserve wants U.S. faster payments services to be "faster, ubiquitous, broadly inclusive, safe, highly secure, and efficient, and… delivered through interoperation among multiple, competing solution operators and service providers" – hence, competitive, rather than centralized and mandated.3 Like faster payments services already in use elsewhere, U.S. systems will be expected to transfer money in real- or near-real-time: typically in seconds, rather than hours or days.4

 

A Fed task force recently concluded two years' worth of effort inviting and assessing proposals for how these systems might work in the U.S. It identified and reviewed challenges, defined where stakeholders will have to collaborate, made recommendations, and prepared a roadmap for wide availability by 2020.5

 

The roadmap's first step was to define how competitive U.S. faster payments systems will be governed to ensure a unified, coherent system. When the task force finished its work, it handed governance planning to a new team of diverse banking, fintech, business, and consumer stakeholders. The Fed quickly sent this expanded team to work, aiming for specific governance recommendations by Spring 2018.6 With a new governance framework in place, the Fed can turn to issues such as rules, standards, fraud detection, cross-border connections, and the role of emerging technologies.7

 

The Clearing House's New Real-Time Payments Services

 

Many of the organizations that presented proposals to the Fed's task force are expected to play significant roles in the emerging U.S. faster payments ecosystem. One of the most prominent will be The Clearing House (TCH), the bank-owned firm that already clears and settles nearly $2 trillion in U.S. dollar payments each day through its private-sector ACH and wire payments services.

 

To build its new real-time platform, TCH partnered with Vocalink, whose technology platform underlies the U.K. Faster Payments Service, in operation since 2008. TCH says it also collaborated with its 25 owner banks to build its faster payments services, which will be open to all U.S. depository institutions. "Similar to Wires and ACH, RTP will become part of the core industry infrastructure with the potential to support many use cases and underpin financial institutions' client-facing services," according to TCH.8

 

Two months after confirming that the U.S. Department of Justice saw no antitrust obstacles, TCH took its new real-time system live.9 On November 13, 2017 the first bank-to-bank payment – $3.50 – was sent in three seconds between accounts at BNY Mellon and U.S. Bank.10

 

TCH says its real-time payment services will "support more seamless and efficient e-invoicing, bill pay, insurance claim payments, cash on delivery payments and more. RTP also provides transparency and certainty with immediate confirmation notices that payments have been sent and received and instantaneously settled." These immediate confirmations will enable businesses to manage cash flow more precisely, and free working capital more quickly.11The Financial Times reports that U.S. banks hope to use RTP as the backbone of Zelle, their competitor to Venmo in the instant personal money transfer business.12

 

According to PYMNTS.COM, TCH anticipated the first RTP transactions from six major banks before the end of 2017, and "by the end of next year, banks holding more than half of U.S. deposits are expected to start using the system."13 RTP will be open to all federally insured banks, including non-TCH banks, either through direct connections or indirect links via third-party service providers, corporate credit unions, or bankers' banks. Other payments services providers will be able to connect by partnering with banks and agreeing to follow RTP's rules.14

 

Still, as Boston Consulting Group partner Mohammed Badi told PYMNTS.COM, it will take time for the system to reach its goal of ubiquity: "You don't just flip a switch and turn on faster payments."15

 

Faster Payments Beyond U.S. Borders

 

The Federal Reserve's task force set cross-border availability of faster payments as a goal, but noted that international real-time payments have special technical, legal and regulatory complexities.16 Some of the proposals it reviewed – such as Ripple's proposal based on blockchain and distributed ledgers – focused especially on real-time cross-border payments.17 Meanwhile, though not offering real-time payments, SWIFT's gpi Customer Credit Transfer service is already providing accelerated transaction speeds combined with real-time tracking to help businesses improve visibility on the status of cross-border payments.18

 

According to an article by Harold Bosse, Global Head of Product and PMO for cross-border payments service Earthport, real-time cross-border payments services require linkages, proper sequencing, and often synchronization between multiple systems for data transfer, screening, validation, authorization, posting, clearing, settlement, and notification. They also require intensive vigilance to address Anti-Money Laundering (AML) issues that may not arise with purely domestic transactions.19

 

Meanwhile, outside the U.S., faster payments services also continue to progress. Australia's highly anticipated New Payments Platform for real-time payments is expected to go live in January, with 80 percent of Australian bank accounts capable of using it by late January.20 Meanwhile, the U.K.'s pioneering Faster Payments system is renewing its infrastructure, anticipating demand "orders of magnitude greater than today's Faster Payment volumes, to cater for the potential exponential growth arising from PSD2 and the Internet of Things."21

 

The

Takeaway:

The pace of U.S. progress towards faster payments is accelerating, as work proceeds towards ubiquitous availability in 2020 and The Clearing House's new RTP system processes its first real-time payments.

Bill Camarda - The Author

The Author

Bill Camarda

Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.

Sources

1. “U.S. Faster Payments Governance Framework Formation Team announced,” Federal Reserve; https://www.federalreserve.gov/newsevents/pressreleases/other20171013a.htm
2. “First New Core Payments System in the U.S. in more than 40 Years Initiates First Live Payments,” The Clearing House; https://www.prnewswire.com/news-releases/first-new-core-payments-system-in-the-us-in-more-than-40-years-initiates-first-live-payments-300555234.html
3. Faster Payments Task Force, Final Report Part Two: A Call to Action, Federal Reserve Faster Payments Task Force; https://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-task-force-final-report-part-two.pdf
4. Faster Payments Effectiveness Criteria, Faster Payments Task Force; https://fedpaymentsimprovement.org/wp-content/uploads/fptf-payment-criteria.pdf
5. Faster Payments Task Force, Final Report Part Two: A Call to Action, Federal Reserve Faster Payments Task Force; https://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-task-force-final-report-part-two.pdf
6. “U.S. Faster Payments Governance Framework Formation Team announced,” Federal Reserve; https://www.federalreserve.gov/newsevents/pressreleases/other20171013a.htm
7. Faster Payments Task Force, Final Report Part Two: A Call to Action, Federal Reserve Faster Payments Task Force; https://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-task-force-final-report-part-two.pdf
8. “First New Core Payments System in the U.S. in more than 40 Years Initiates First Live Payments,” The Clearing House; https://www.prnewswire.com/news-releases/first-new-core-payments-system-in-the-us-in-more-than-40-years-initiates-first-live-payments-300555234.html
9. “Re: The Clearing House Payments Company LLC Business Review Request (Letter),” U.S. Department of Justice; https://www.justice.gov/atr/page/file/998201/download
10. “Real-Time Payments Successfully Gets Through Its First Test Drive,” PYMNTS.COM; https://www.pymnts.com/news/faster-payments/2017/real-time-payments-successfully-gets-through-its-first-test-drive/
11. “First New Core Payments System in the U.S. in more than 40 Years Initiates First Live Payments,” The Clearing House; https://www.theclearinghouse.org/press-room/in-the-news/20171114 rtp first new core payments system
12. “US comes from a decade behind to launch faster bank payments,” Financial Times; https://www.ft.com/content/8a498116-c94b-11e7-aa33-c63fdc9b8c6c
13. “Real-Time Payments Successfully Gets Through Its First Test Drive,” PYMNTS.COM; https://www.pymnts.com/news/faster-payments/2017/real-time-payments-successfully-gets-through-its-first-test-drive/
14. “Re: The Clearing House Payments Company LLC Business Review Request (Letter),” U.S. Department of Justice; https://www.justice.gov/atr/page/file/998201/download
15. “Real-Time Payments Successfully Gets Through Its First Test Drive,” PYMNTS.COM; https://www.pymnts.com/news/faster-payments/2017/real-time-payments-successfully-gets-through-its-first-test-drive/
16. Faster Payments Task Force, Final Report Part Two: A Call to Action, Federal Reserve Faster Payments Task Force; https://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-task-force-final-report-part-two.pdf
17. Ibid.
18. “How SWIFT gpi Will Change the Cross-Border Payments Market,” ACI Worldwide; https://www.aciworldwide.com/insights/expert-view/2017/june/how-swift-gpi-will-change-the-cross-border-payments-market
19. “Why challenging times lie ahead for real-time cross-border payments,” FX-MM; https://www.fx-mm.com/article/67781/challenges-real-time-cross-border-payments/
20. “Instant funds transfers between banks to be possible from January next year,” ABC; http://www.abc.net.au/news/2017-10-03/instant-bank-transfers-will-soon-be-a-reality/9012270
21. “Expressions of Interest sought for Faster Payments infrastructure competition,” Faster Payments UK; http://www.fasterpayments.org.uk/expressions-of-interest

Related Articles

When Making International Business Payments, Bulk Payments May Save More Than Money
Real-Time Business Payment Systems Expand Worldwide
The Road to Real-Time B2B Payments for International Commercial Payments

Make International Payments

Existing FX International Payments customers log in here