Faster payments adoption is speeding up. In fewer than three years, The Clearing House grew access to its RTP® Network to over 50% of demand deposit accounts in the U.S., and it could reach over 70% by the end of next year, according to Todd Koehn, vice president of faster payment solutions at Bankers’ Bank, Madison. That’s a massive adoption rate compared to other fintech solutions such as remote check deposit (which took roughly a decade to catch on) and mobile payments/wallets (less than a quarter of Americans report using one, though the Google Wallet was released in 2011).
And faster payments show no sign of slowing down. The Federal Reserve’s FedNow is on track to provide a government rail by 2024. “Some community banks may not want to partner with a private organization to offer faster payments, so the Fed is responding,” Koehn explained.
Whichever system banks choose, offering faster payments solutions to their customers and business clients may soon be table stakes in the ever-more competitive financial services market. “We believe it’s the next evolution of payments,” said Koehn. “In order for community banks to serve their diverse customer-base, they need to put faster payments on their strategic plan so they can compete and retain current customers and attract new ones.”
Want to see how faster payments work in action? During the upcoming WBA Management Conference, Koehn will moderate a panel of Wisconsin bankers whose banks have implemented faster payments successfully. Click here to register your entire team for one low price!
Why are so many customers demanding faster payments?
Faster payments solutions benefit consumers, businesses, and banks in different ways. For consumers, the most common use case for faster payments is person-to-person (P2P) payments. “It’s an additional payment option which allows customers to decide when they want to pay, and receive better notifications of when something was paid or money was sent, within seconds, not days,” said Koehn.
Consumers and businesses also find value in Request For Payment applications, which allow for instant invoice generation and payment with the click of a link, rather than mailing or emailing invoices and waiting for checks to clear.
In the covidian economy, liquidity is a serious challenge for many small businesses and solopreneurs. Especially for workers in the burgeoning “gig economy,” faster payments solutions alleviate some of that stress by providing instantaneous payments for work. Faster payments can also save on transaction costs. RTP is structured with a flat fee, not a percentage cut, which can make it far more affordable than credit card payments, for example.
For banks, faster payments solutions are more than just another product. "It eliminates the risk for the bank from the traditional delays in settlement,” said Koehn. Because it eliminates settlement delays, liquidity management is critical in the 24/7/365 faster payments world. “Bankers’ Bank isn’t processing transactions,” Koehn explained. “We are helping community banks manage their liquidity and their settlement. By partnering with us, they don’t have to worry about the bank closing at 3:00 p.m. and having enough money in the account to fund transactions.”
So, how can community banks implement faster payments?
Currently, a community bank’s ability to roll out faster payments solutions to its customers is dependent upon whether or not the bank’s core system has an affordable option available. While many bank core providers do currently offer faster payments access, some do not. “Partnering with the right organization will be critical,” said Koehn. He recommended making availability of faster payments part of the core renewal negotiation, if the bank doesn’t already have access.
Partnering with a correspondent bank can also facilitate a smooth rollout of faster payments. “By partnering with a correspondent bank, community banks are able to offer services they otherwise wouldn’t be able to offer,” said Koehn. Especially for smaller institutions that may not maintain a high volume of transactions, a partnership can lower the barriers to entry. Leveraging the expertise of a correspondent bank as the Funding Agent, a community bank can focus on its core strengths of customer service and community engagement, rather than managing liquidity risk.
Seitz is WBA operations manager and senior writer.
Bankers’ Bank is a WBA Gold Associate Member.