Despite some skepticism by community banks of The Clearing House’s real-time payments network, it announced Tuesday that 15 small institutions have joined.
It is unclear if it marks a turning point for the network, which is owned and run by a group of large banks. Some small banks have expressed consternation about its ownership and fees they might have to pay. And some have expressed interest in the real-time payment system the Federal Reserve is building called FedNow which is scheduled to debut in 2024.
The 15 banks are all core banking customers of Jack Henry, which has worked to make all its core banking platforms RTP compatible. It built a centralized payment hub called JHA PayCenter to which all its cores connect, so that there’s a single integration point with the RTP network (and other networks like Zelle).
Pegasus Bank in Dallas, which has assets of more than $657 million, was the only bank of the 15 willing to be identified as a member of the network.
Rusiru Gunasena, director of real-time payments at Jack Henry, expects the first bank to go live within 30 days.
The banks have several reasons for adopting RTP, Gunasena said. Some want to serve gig-economy workers who want to get paid right away, rather than wait for a two-week pay period to end. (Peter Hazlehurst, Uber’s head of payments, said at Money 2020 this week that his company can now pay drivers at the end of each trip.)
Drawing down PayPal accounts is another popular use case. Earlier this year, PayPal announced it was going to connect its PayPal and Venmo accounts with JPMorgan Chase to help their customers move money in their PayPal or Venmo accounts into their financial institution account more quickly. This feature was especially geared toward small businesses, which tend to not have debit cards.
“If you're a small business, that means operating cash for you to be able to leverage on a same-day or real-time basis as opposed to waiting potentially a few days for that transaction to come into your account,” said Peter Davey, vice president of product innovation at The Clearing House.
Another benefit banks get from receiving payments via RTP as opposed to card push mechanisms is that they are no longer floating the availability of funds to their customer, Davey said.
“Now they actually have the funds managed within their position and now they're able to give those availability of funds to their customer, with no time to reconciliation,” Davey said.
To help allay small bank concerns, TCH established an advisory committee made up of smaller community banks and credit unions.
“At least from a governance perspective, we've addressed a lot of the industry concern out there about the smaller institutions not having a voice at the table,” Davey said.
The small banks have also wondered about RTP’s fee structure, and if they could end up getting charged more.
The Clearing House recently had added to some contracts a caveat that said that if they started working with another real-time payment network (such as the Fed’s FedNow), the TCH would have to reconsider pricing. The Clearing House has walked back from this position and no longer uses that caveat.
“We are very settled in the fact that flat pricing is the best way for the industry to progress, and we are very committed to that position,” Davey said.
The Clearing House has also walked back from its initial resistance to the FedNow proposal, which it seemed to consider an unwelcome competitor at first.
“Our initial pushback on the service was that we didn't feel that it was needed,” Davey said. “We felt like we were accomplishing what the Fed had put out there in their original 2013 request for comment. We compete and collaborate with the Fed on many products today and we have to work hand in hand with them.”
