Real-Time Payments Are Soaring In The U.S.
The U.S. was slow getting to real-time payments, but the businesses and individuals are taking them up in a big way, using primarily the private sector RTP rails from The Clearing House (TCH). The number of real-time payments and their size of the payments has risen sharply in the last quarter.
TCH which operates the largest instant payments system in the United States said today that it averages 1.18 million payments each day, worth $481 billion, a 195% leap in value from the previous quarter. Since it increased the maximum transaction limit from $1 million to $10 million in February, the average transaction has grown from $842 in January to more than $4,000 by June, a 376% increase.
'We currently have over 30,000 businesses that are originating RTP payments on the network each and every month and over 6 million consumers,' said Jim Colassano, senior vice president of RTP Business Product Management at TCH.
Jim Colassano, SVP of RTP Business Product Management at TCH David Beyda, Courtesy The Clearing House
'They're using it not only because of the speed but because of the breadth of functionality that it offers. It's available 24 hours a day. You can make a payment precisely when you want to make it. So, if you want to make an instant payment next Thursday at two o'clock in the morning, you can do that.'
Some of the new uses of RTP, such as payroll, have surprised him.
'I thought that once we got to direct deposit of payroll and payroll cards, we were done.'
The gig economy and earned wage access as an alternative to payday loans have changed that. Gig workers can get paid immediately after their shift, and increasingly through earned wage access workers can get paid for work they have done before the traditional payroll schedule.
The precision of RTP has also attracted small businesses concerned about cash flow. They can specify the exact time a payment is made, so they don't have to send a check several days ahead because they don't know how long a check will take in the mail and then to clear.
Corporations are using RTP to improve customer experience.
So for example if they have an irate customer on the phone they can offer to settle a dispute and before the customer gets off the phone the money is in her account.
'Technology firms are creating a more dynamic user experience,' said Colassano, 'and we are seeing a generational shift in expectations.'
ACH, which was developed in the early. 1970s, was built to move funds in bulk and in batch while today's users increasingly expect immediacy in payments.
RTP funds are irrevocable, so the receiver doesn't have to worry non-sufficient funds or a sender trying to cancel the transaction and demand the money back. The receiver can draw on the funds immediately and the sender receives confirmation the payment has been made — seven days a week, nights, weekends and what used to be called bank holidays.
The cost for this varies by bank, but the network charges 4.5 cents per transaction, a price it lists on its website. Only banks can access the network, and they are free to mark up the price of transactions.
RTP makes a big difference to banks in time sensitive businesses like mortgages which have had to deal with a bank payment system that worked on East Coast hours.
'When you're closing on one coast and your financing agent is on the other coast, it gets problematic and presents an incredible amount of risk to the industry,' Colassano said.
Using RTP that operates 24 hours a day just eliminates the problem of time zone differences. About 45 percent of the transaction on the RTP network occur outside regular banking hours, said Gregory MacSweeney, spokesman for TCH.
Real estate deals made up some of those transactions — closings, earnest fund refunds, construction loans payouts, fees to agents and to title companies, all manned by professionals who often work outside regular office hours.
It's also used by innovative car companies like Cross River Bank and Carvana which sell cars through a combination of internet listings and direct delivery to a customer. They use RTP and its request for payment to transfer funds immediately upon pickup or delivery of a vehicle.
In the early days of RTP, Colassano had to explain to banks and corporates what it was and how it worked. Now he no longer has to explain instant payments, and instead he talks about use cases, including transferring funds from closed loop systems to bank accounts.
One of their first big users of the real-time payments network was PayPal. Other closed loop systems with digital wallets, such as gaming sites, have also made use of RTP.
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