The companies at the forefront of real-time payments

July 4, 2022 10:00 AM

PNCBofACitizensBL — PNC, Bank of America and Citizens are among the banks that are actively adding use cases for real-time payments.

Real-time payment projects are picking up steam in 2022, spurred by a push to support international transactions and an economic environment that places an onus on tying available funds to the time of need.

"Increasingly people and businesses want to know when they can get their money, and how these times can be cut down to minutes," said Harry Newman, head of banking strategy at SWIFT, which is working on several projects designed to reduce friction among the parties involved in real-time payments in different countries.

The overall market for real-time payments is expected to advance at a compound annual growth rate of 33% over the next 10 years, reaching a yearly volume of about $300 billion by 2032, according to Fact.MR, a Rockville, Maryland-based research firm.

That's attracting numerous banks, fintechs and other organizations to the market for real-time payments. Here are some examples.

Swift is running pilots to ensure interoperability for cross-border real-time payments.

SWIFT

SWIFT, which operates a global messaging system for international payments, is running tests that would enable central bank digital currencies to be used for transactions between countries in a few minutes or less.

In May, SWIFT began work with CapGemini to determine how SWIFT can link multiple CBDC networks. SWIFT's earlier CBDC experiments demonstrated a cross-border transaction between a party on a distributed ledger-based CBDC network and a second party running on a real-time gross settlement system was workable.

"Standardization is a key step. Interoperability is really hard," Newman said. "If someone builds a solution for a domestic purpose, it's going to be hard to work internationally."

The organization is also pushing for expanded usage of updated messaging protocols that would shorten the time in transit for international payments.

Last year, SWIFT introduced SWIFT Go, a service that uses SWIFT technology to speed up large business transactions, enabling banks to compete with fintechs that use blockchain and other innovations to remove steps from international payment processing.

The barriers to faster international payments often reside on the recipient's end, where local monetary controls can slow settlement, according to Newman, citing research from the Bank for International Settlements.

"Whether the delay is a matter of hours or a matter of days, it's typically because of things like currency controls or a less mature infrastructure, or local payment systems that are shut down for certain hours," Newman said.

Improving connections between parties in different markets can also potentially address the decline of correspondent banking, which is challenging financial inclusion, according to Erika Baumann, director of commercial banking and payments for Aite-Novarica.

"As the correspondent banking landscape has been shrinking due in part to the higher risk and low transaction volume in emerging markets, it is more difficult for all markets to have equal access to the global economy," Baumann said "This is not good for anyone, but is particularly hard in already challenged geographies. It is hard to measure the missed opportunities of inequality in access to the financial system."

Fiserv's collaboration with TCH opens real-time payments to thousands of additional banks.

The Clearing House

The Clearing House worked for years to add more banks to the RTP rail, with the current number still in the low hundreds. Its strategy could get a major boost from a May collaboration with bank technology firm Fiserv.

Fiserv, which has about 12,000 financial institution clients, is offering access to Now, a Fiserv gateway that offers RTP transactions as well as access to other transfers services such as Zelle. Potential use cases for real-time payments include gig economy disbursements, real-time bill payments and insurance payouts.

The addressable market for the Fiserv/TCH collaboration covers about 75% of U.S. bank accounts. Fiserv and TCH are positioning the partnership as a way to bring more community banks and credit unions into real-time payments.

The Federal Reserve

The RTP network has developed faster than the Federal Reserve's real-time payment project, which is still in testing.

The central bank-backed FedNow rail is not set to launch until 2023, though it has attracted at least 110 banks for pilots, including Wells Fargo and First Internet Bancorp.

The FedNow rail will allow bank transfers, prepaid card loads, payroll disbursements, bill pay and real-time invoice presentment.

While FedNow has been relatively slow to unfold, it sped up its timeline during the pandemic, with The Federal Reserve Bank of Boston reporting the project has passed benchmarks such as building a clearing and settlement engine, security and interoperability with other payment networks.

Christopher Dilts/Bloomberg

Bank of America/JPMorgan Chase

The push to make cross-border real-time payments interoperable is also attracting Bank of America, which is part of a group of banks collaborating with The Clearing House, which operates the RTP Rail in the U.S.; and EBA Clearing, which supports R1, a similar rail in Single Euro Payments Area covering the European Union, the U.K. and nearby countries.

BofA will be part of a pilot this year that will route real-time payments over RTP and R1 Rail to manage local liquidity requirements that often slow international transactions. Other banks in the project include ABN Amro, BBVA and JPMorgan Chase. The RTP/EBA initiative uses ISO 20022, a messaging standard with expanded data to support digital transactions and faster processing.

The initiative also connects with SWIFT Go and other SWIFT technology that is designed for international digital transactions and instant settlement.

Euronet's Cecilia Tamez is leading the firm's cross-border real-time payments project.

Euronet

Like SWIFT, the Leawood, Kansas-based fintech Euronet is attempting to reduce processing friction between financial institutions in different countries to make funds available faster. Euronet recently made its internal payment platform, called Dandelion, available externally and has recruited a network of more than 4 billion accounts spread over a half million retail locations in 170 nations. This covers about 81% of the world's GDP, according to Euronet.

The company's goal is to streamline fragmented cross-border payments by controlling the full payment rail, improving visibility into a payment's status and reducing reliance on last-mile connections that can differ between countries, hindering processing speed.

Dandelion uses an application programming interface to connect banks, fintechs and neobanks in different countries, making funds available quickly, and also reaching markets that mainstream banks often don't serve, according to Cecilia Tamez, chief strategy officer for the money transfer segment at Euronet.

Dwolla's Abou-Nasr says his firm hopes to bring real-time payments to as many users as possible.

Dwolla

Digital payments company Dwolla plans to use a recent boost in Nacha same-day ACH limits to encourage adoption of real-time processing, giving the fintech's clients more time to figure out the use cases that are the best fit for instant settlement over the RTP rail.

Nacha in March raised the same-day ACH limit from $100,000 to $1 million. While that's not real-time settlement, Dwolla plans to approach insurance technology firms, construction companies and logistics firms to move higher-volume payments to same-day processing.

That would be a precursor to moving as much payments volume to real-time rails as possible over the next year as demand and use cases evolve, according to Yasser Abou-Nasr, senior vice president of product at Dwolla, which provides API connection to the ACH network and RTP settlement rail.

U.S. Bank

The Minneapolis-based bank has partnered with auto sales e-commerce site Driveway.com to support instant settlement for people selling cars.

To use the RTP feature, a customer trying to sell a car enters details about the car, then receives a quote. An email invitation follows, prompting the seller to provide payment details. Following an agreed sale, a Driveway rep inspects the car, and the payment is instantly deposited into the seller's bank account through the RTP network.

U.S. Bank says that's before the car leaves the driveway, a timing that the bank hopes will encourage consumers and small businesses to use real-time payments for other large transactions.

Scott Eisen/Bloomberg

Citizens

The supply-chain crunch has resulted in a liquidity crisis, as businesses worry about having the right amount of funds on hand when a needed supply becomes available.

Citizens Commercial Banking went live this spring with a request-for-pay product through the bank's treasury management system, covering business-to-business and business-to-consumer transactions.

Request-for-pay pairs with the RTP rail to combine real-time billing with instant payments. The bank hopes this will reduce some of the strain on supply chain finance that can result from backlogs, which in turn create an imbalance in financial positions.

"There's benefits in having precision in payments. That's never been more important than it is now," said Matt Richardson, head of the treasury solutions division at Citizens Commercial Banking, in an earlier interview. "That's attracting corporates to real-time payments and billing. It can be a benefit for banks to position themselves for this future."

Cogent Bank

Community banks are also warming up to real-time payments. Cogent Bank, a $700 million-asset Orlando-based bank, last week adopted a blockchain-based B2B payments product from bank technology provider Tassat Group.

The platform will allow clients to make real-time payments at all times to other Cogent Bank clients that are enrolled in Tassat Pay. Tassat Pay offers immediate settlement and a portal for B2B payments.

The bank is accessing real-time payments through smart contracts and is also connecting to the Fedwire through the same interface.

Andrew Harrer/Bloomberg

PNC

PNC, which was an early adopter of real-time billing through the RTP-connected Request for Pay service, this spring entered partnerships that support early wage access, a system for giving employees a portion of their paycheck that they've already earned ahead of the traditional payday.

The two products are designed to be complementary, allowing consumers to access part of their salaries to pay a bill exactly when the biller needs to receive those funds.

The bank also views real-time payments and early wage access as means for employers to attract and retain workers by offering more flexibility in money management.

Verizon

The mobile carrier was part of the original deployment of Request for Pay through BNY Mellon and Citigroup, and the company is now working with other banks such as U.S. Bank, Bank of America and Wells Fargo to test real-time billing and payments.

In an earlier interview, Attie Muse, Verizon's director of payment strategy and operations, said building bank ubiquity is key to expanding real-time billing and instant settlement, pushing the involvement of as many banks as possible.

Through a series of pilots, Verizon is also trying to determine the best fit for instant settlement, focusing on accounts where there is the most need to move funds quickly.

UMB's Uma Wilson is preparing the bank's roadmap for real-time payments.

UMB

Like Verizon, the $40.6 billion-asset UMB is also looking to find a role for real-time payments in the context of a broader expansion of digital commerce that has taken place over the past two years.

The Kansas City-based UMB is developing roadmaps for both the RTP Rail and FedNow, with both expected by the end of 2022. The bank has built a library of APIs that can connect clients to real-time payments and other services such as health care payment cards, supply chain finance and balance management, based on the client's requirements.

Many of the bank's treasury management clients are midsize companies, which could have a more limited demand for instant settlement than larger companies that have a greater frequency of payments, which are often for larger amounts.

"A lot of large Fortune 100 companies want to connect payments through [application programming interfaces]," said Uma Wilson, UMB's chief information and product officer, in an earlier interview. "But the midsection of corporate America is slowly making progress in that area."