How Far and Fast Payments Have Come

“Once you’ve been bitten by the payments bug, it’s an incurable disease. It never goes away.”

Steve Ledford, retiring as senior vice president, product and strategy at The Clearing House (TCH), told PYMNTS’ Karen Webster that decades in the payments industry have given him a front row seat to some seismic changes within financial services.

By his own admission, he has seen all manner of payments evolution — and the theme running through it all, especially in the last decade, has been the trend toward faster payments. The overarching goal, he said, has been to bring speed to commerce and commercial payments.

“You cannot do much better than instant,” he told Webster.

Of course, launching any new payments network is no simple task. The levels of complexity, of research and development — and then the journey toward getting critical mass — are staggering.

The process is not measured in months or years, but in decades. Though not all payments will make the shift into real-time functionality (some will be instant, others can be same day), he said, the foundations put in place more than 10 years ago will effectively future-proof new initiatives as businesses pay their employees faster, for example.

See also: Corporates, Consumers Give Real-Time Payments Fresh Look With $1 Million Transaction Limit

Against that backdrop, B2B payments are also benefiting from becoming increasingly digital and moving faster across borders. Industries as diverse as trucking/logistics and online gaming are being transformed by the faster movement of money and goods, and the paper check continues to move by the wayside, to the benefit of the economy at large.

“Speed is good,” said Ledford, noting that there is a level of comfort that transacting parties glean from knowing that payment obligations can be settled in real time, with immediate confirmation.

The Evolution  

It’s been a long road to get to where we are now.

To get a sense of how faster payments have evolved, “You really have to go back to 2011 to get the full story,” Ledford told Webster.

Back then, TCH led an industrywide effort called the Compass Project that issued a comprehensive report on where the payments industry might be headed within a few decades. Among the key findings: There’d be a greenfield opportunity for real-time clearing and settlement of transactions, a broad range of ways to access the system, and room for non-payments-related services that could be layered on top of that real-time activity.

But there was a bit of holdup in turning those concepts into reality, as Ledford noted. In the early years of that decade, the financial services industry was preoccupied — and dominated by — the emergence of the Dodd-Frank Act.

Move forward a bit to 2013, and updates to the ACH network rekindled interest in real-time payments, which led to a consultative period that included the TCH being asked to look at the ramifications of a faster payments system, with ensuing input and support from banks, credit unions and other stakeholders.

From then on, things kept moving forward (and TCH launched its RTP system five years ago).

Related: Real-Time Payments Become Corporate Cornerstone to Better Liquidity Management

Now that faster payments schemes have proliferated around the world, Ledford remarked, the key challenge has been to cement acceptance points across the globe, and to get new use cases out in the field.

And thus, a chicken-and-egg problem takes shape, said Ledford.

“Folks want to join a network when they see that others are already on the network,” he said, adding that TCH has been instrumental in getting that first core group of banks and third-party processors out in the field to receive payments.

There has been, and is still, room to grow, given that just a few dozen financial institutions (FIs) are connected to the RTP network out of hundreds of possible candidates. The long tail is long indeed, he said.

But on the consumer side of the equation, he said, the readiness has been there for some time. In fact, in Ledford’s estimation, consumers expected they wanted real-time payments even before they realized it was something they wanted — and they’re finding particular value in account-to-account transfers and other use cases.

Read more: TCH: Tokenization Removes Fraud Risk From Account-to-Account Transfers

Looking ahead, he said that as more countries craft their RTP networks and interoperability takes shape, we’ll see a transformation of bill payments and requests for payments. Within TCH’s own initiatives, he said, there will be the eventual launch of a document exchange that can enable the secure transmission of various communications alongside payments and requests for payments, using the RTP rails to get it all done.

“The value-added services are going to change the payments equations a bit,” as firms and FIs monetize speed and value. When the transactions are essentially free, said Ledford, it is the service that will prove lucrative for providers.

Customer relationships will become richer and fuller, and RTP and providers will get more attention.

“It’s still early in the game,” he told Webster of the faster payments evolution, “and the low-hanging fruit is still out there.”