Credit unions proceed with real-time payments despite lingering questions

A group of credit unions is working to get a jump how real-time payment processing fits into their world, even as the broader payments industry wrestles with questions about the technology's implementation.

"The credit unions want to find ways to optimize the user experience for new payments, and we want to use collaboration to make the migration as useful as possible," said Keith Riddle, executive vice president of enterprise solutions development for Corporate One Federal Credit Union.

Corporate One, which owns a Credit Union Service Organization that serves 825 other credit unions nationally, is using DH Corporation's (D+H) cloud-based testing in environment to explore real-time payments to see what type of transactions are a fit for all credit unions, or a specific credit union.

The general types of payments include real-time bill payment, payment requests, P-to-P, B-to-B, and expedited payments to suppliers. "As a cloud based solution, they can use it internally and see what the use cases are and can see how it works in a very controlled fashion," Riddle said.

Real-time and faster payment processing efforts are accelerating across financial services and businesses. They are considered necessary components for the ongoing development of e-commerce, P-to-P and cross-border payments; they also hold the potential to bring more automation to business payments.

The Federal Reserve is working on guidance for faster payments in the U.S., with a particular focus on security for 2017. Alternative payment companies such as Dwolla are developing faster payment services, and real-time processing has also progressed in other countries, such as the U.K.

"We have monitored the real-time payment dynamic for the last 18 months and have spoken to some people in the U.K. to see how it worked over there," Riddle said.

Early on, real-time processing standards were not universally supported, as some larger banks pushed back and questioned the use cases. While most parties now agree the concept is important, there are still hurdles. Small businesses, a frequent client category for credit unions, are lagging in adoption, partly because the some small businesses feel most of the technology is not designed for their needs.

And among financial institutions, there are concerns about faster payments generating more fraud risk.

As faster payments and digital transaction options proliferate, credit unions are adopting at different paces, Riddle noted. Some credit unions are already starting to offer real-time payments as part of the bank-led Zelle initiative. That creates pressure not just on the business strategies for credit unions, but also on the technology departments as the institutions figure out what their members want and what the credit union needs to remain competitive.

The mix of cloud and testing is designed to allow for some trial and error, according to D+H.

"We don't want to put the onus on the IT department," said Daniel Bendersky, head of presales for the Americas for D+H.

Corporate One doesn't envision a lot of implementation of real-time payment schemes this year for credit unions, according to Riddle, who expects testing to pick up this year ahead of more robust deployment in 2018.

"Getting banking systems and processes prepared in advance of real-time-payments is a significant undertaking and requires some new thinking," said Sarah Grotta, director of the debit advisory service at Mercator. "It changes an incredible number of platforms, processes and interfaces."