Big banks let merchants offer real-time bill pay to consumers

In bill pay, real-time settlement has typically focused on the needs of the person or business making the payments, such as a tenant asking his or her bank to pay the rent on its due date. Several large banks are now turning their attention to the needs of billers.

Citigroup and the Bank of New York Mellon recently announced support for Request for Payment (RfP) messages through The Clearing House's RTP network. At Citigroup, institutional clients can send electronic bills to consumers, who can pay immediately or at a scheduled time. BNY Mellon recently announced its first client for RfP, Verizon, which can offer consumers the ability to pay bills immediately or at a specific time. Citigroup is BNY Mellon's initial bank partner for the Verizon deployment.

The partnership between BNY Mellon, Citigroup and Verizon is a good example of the value billers get from real-time payments beyond faster access to funds, said Erika Baumann, director of Aite-Novaica's commercial banking and payments practice.

"It keeps the messaging from the utility around the transactions," Baumann said. "It's an important piece for the overall adoption of real-time payments. It's not just about the speed of the payment but also the messaging."

Citibank, BNY Mellon, JPMorgan Chase and PNC Financial Services Group are among a small group of banks to offer RfP messages that can be tied to the RTP rail. That leaves dozens of large banks and thousands of small banks that don't offer requests for real-time payments. Those banks may see the need to adopt this technology to stay competitive.

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"The banks that have supported it represent a large position of the marketplace," Baumann said. "If [the large banks] can prove this use case adds value that could give adoption a boost."

A group of 23 large banks plus technology firms Jack Henry and Fiserv have agreed to support technology that allows billers to present invoices through the digital channel using a request for payment message through the RTP network by the end of 2021, potentially covering 40% of U.S. consumer accounts. So far, only the four large banks have signed on.

"This will become a bigger leg up for banks who have it. Here in the U.S. we don't have a big regulatory mandate coming down" to require this technology, Baumann said, adding market forces will push other banks to get on board.

BNY Mellon anticipates more banks and corporate billers will add RfP in the near future, creating more interoperability for RfP.

"The trick for banks and even the core processors is that being RTP-enabled means a couple of things. The banks are connected to the network and can get an inbound credit," said Carl Slabicki, head of strategic payment solutions at BNY Mellon, adding that all banks that support RTP can handle inbound transactions. "The second wave is supporting value-added messaging and outbound payments."

Wireless carriers and utilities are a large source or recurring payment volume. Verizon generated $1.29 billion in revenue in the past year, and T-Mobile and Verizon combined have more than 200 million consumer accounts, according to U.S. News and World Report. AT&T has about 77 million consumer accounts, according to Statista. And the average U.S. household spends $2,000 per year on utilities, according to RocketHQ.

The pandemic's economic challenges suggest demand for faster or more flexible payment terms, or the ability to pay instantly when the consumer knows he or she has adequate funds. Water utilities in the U.S. for example, lost about $2.6 billion in revenue to delinquent bills in 2020, according to the American Water Works Association. And most of the large wireless carriers were forced to adjust their billing policies due to an increase in late payments during the pandemic.

"For very large telecoms and utilities, this is an opportunity," Baumann said.

In an email, Citi's PR office said as more banks offer these services through the end of 2021 and into next year, the volumes of RfP will grow and become a significant source of collection for large billers like utilities and telecoms.

There will be a "few more banks" supporting RfP with Verizon before the end of the year, Gregory MacSweeney, a spokesman for The Clearing House, said in an email. It is up to each bank to decide timing for RfP, he added.

"Even though [a lot of] banks are connected to RTP, this next move toward additional adoption of Request for Payment messaging will occur over the next six months," BNY Mellon's Slabicki said.

The Clearing House and its member banks have spent more than $320 million to build the technology that powers real-time payments since the network's launch in 2017. The RTP Network has more than 150 financial institutions active as of late October, potentially covering 60% of all U.S. consumer bank accounts. The earliest payments were mostly peer-to-peer transfers, though The Clearing House reports other use cases are emerging, such as insurance claim disbursements and real-time salaries.

Bank technology strategies that support real-time payments are often complex, according to new research from Gartner, adding bank executives have to determine if it's appropriate to modify existing infrastructure that was not originally designed to support real-time payments or perform a full replacement.

Fifty-six percent of retail banks have plans to upgrade existing digital payment technology required to support real-time payments, while 22% of banks say they plan to add new technology, according to Gartner. For commercial banks, 59% say they plan to upgrade existing technology, while 21% say they plan to deploy new payments technology.

Baumann considers this slow progress. "There are about 150 banks on the RTP rail. When you consider there are [5,000] banks in the U.S., no I don't think we're going quickly enough," Baumann said.

Other faster payment schemes are also moving slowly. The U.K.'s New Payments Architecture was introduced six years ago, though regulators are narrowing the initiative's focus because the earlier plans were too broad and led to potentially unnecessary infrastructure investments. And in the U.S. the government-backed FedNow system is not expected to launch for at least another two years.

"Nothing really happens quickly enough because of the ecosystem that we have in the U.S.," Baumann said.