Real-Time Payments Are Reaching A Tipping Point

While commercial real-time payments became available in the U.S. back in 2017, they haven’t yet hit ubiquity. By the end of 2018, the RTP network reached a little more than half of U.S. accounts. But this has been the domain of larger financial institutions, especially when community banks and credit unions are included.

This is shifting, though. Last month, payment company PayFi and The Clearing House (TCH) partnered to bring real-time payment technologies to community banks.

The latest Faster Payments Tracker looks into the newest developments and initiatives related to making faster payments happen.

According to a recent survey, 90 percent of businesses now expect real-time payments – but, as with many innovations, there is a gap between expectations and reality. More than 75 percent of businesses still use paper checks to make or accept payments, and close to half still use cash.

This tracks with findings from PYMNTS’ Payables Friction Playbook, where 80.8 percent of surveyed AP professionals paid invoices via paper check. Interestingly, 63.5 percent reported they are “very” or “extremely” satisfied with paper checks, implying that the friction of using checks may not be enough to change payment behavior.

It’s also possible that FinTechs are not conveying the benefits of electronic payables when discussing processes with FIs. “The conversations that do take place tend to be myopic. They’re happening between people who have a vested interest in a particular outcome, and in a small sliver of the payables continuum,” said Matt Clark, president and chief operating officer of Corcentric, in an interview with PYMNTS. “It’s very hard for the person receiving the message to put the pieces together and make a coherent, end-to-end continuum assessment of what’s best for their entire B2B interaction universe.”

Benefits of Real-Time Payments

FIs do see the benefits, according to a survey by Citizens Commercial Banking. A majority (60 percent) said real-time payments would improve collection activity, and nearly the same amount (59 percent) imagined real-time payments would help to better manage cash flow.

FinTechs have been partnering with banks to drive innovation and increase usage of real-time B2B payments. For instance, AvidXchange has worked with Fifth Third Bank to allow buyers to pay invoices faster and take advantage of early-pay discounts, while enabling suppliers to get paid quicker and free up their cash flow.

The idea is to “bring value to both our buyers and our suppliers,” said Denise Leleux , AvidXchange senior vice president of supplier services, in an interview with PYMNTS.

Security as an Added Benefit

The Faster Payments Tracker also noted the real-time payments network’s ability to reduce fraud, include payment data with transactions and more easily automate payments.

Security has become more integral in increasing confidence and boosting adoption of real-time payments. “We still have work to do on the security side,” said Jon Zimmermann, senior product manager, electronic products at Fiserv.

Due to the compressed nature of real-time payments, this speed leaves more opportunities for fraudsters to exploit vulnerabilities. “The ability to react is becoming zero,” said Zimmerman.

For real-time payments to see mainstream adoption, new and improved fraud detection and prevention capabilities will have to be developed, and dispute resolution processes will need to be fine-tuned.

“Real-time payments require real-time fraud detection and mitigation infrastructure, [and] the right approach can help ensure that security does not come at the expense of customer experience,” said Kannan Srinivasan, senior director of risk strategy at Fiserv.

“This balance is particularly important when it comes to P2P payments, as consumers’ perceptions of security and convenience affect adoption and use.”

Citi recently launched a tool that uses artificial intelligence (AI) and machine learning (ML) to analyze client behavior for suspicious activity. The financial services provider is leveraging the solution to better determine legitimate clients’ actions as real-time payments change established activity patterns.

The Role of APIs 

APIs have the potential to enable faster payments, but they can also introduce vulnerabilities.

Real-time payment system advocates seek to make the rails as close to ubiquitous as possible. Application program interfaces (APIs) are one way financial players can facilitate consumer and business adoption of these real-time rails and drive up participation.

Technology startup Orderful recently released a B2B platform to help vendors integrate with corporate clients’ systems in real time. These connections enable information such as purchase orders, invoices and invoice receipt confirmations to easily move between suppliers and their buyers.

FIs looking to improve payment speeds must focus on providing easy access to real-time settlement systems, offering services such as quick data transfers that help them accelerate the pace of business activities. APIs can be powerful tools in helping financial players achieve these goals, as long as these firms take adequate measures to ensure the technology’s security.