Are Real-Time Payments Near an Inflection Point? Bank of America Thinks So

Use cases for real-time payments have never been a source of argument, even among detractors.

The ability to speed bill payment and peer-to-peer flows, as well as move money instantly, has been around for a while. The FedNow® Service debuted last summer, while The Clearing House’s RTP® network has been operating since 2017. But what will it take to bring these use cases home to consumers?

Margaret Weichert, chief product officer at The Clearing House, and Irfan Ahmad, managing director and head of U.S. payments in Global Payments Solutions at Bank of America, answered that question. Both agreed that real-time payments in the U.S. will go mainstream as firms and banks realize the benefits of the “precision” tied to those transactions.

“Payments are … two-sided markets where you need engagement across an ecosystem,” Weichert said. “We complement the Fed well as a private-sector network. Having two players in the market helps in the competitive sense, as we ensure those products are better and more market responsive, while also validating market demand.”

The RTP network, for its part, reaches most direct deposit accounts, and growth in transaction volumes has been healthy.

Always on, Always Available

No matter the use case or network being used, faster payments seek to offer immediacy, transparency and availability of funds that solve real-world frictions, Ahmad said.

“[N]o other payment rail allows you to see within a few seconds whether or not that payment was successful,” he said. “… There’s a huge benefit in that, whether you’re a consumer or a business.”

Ahmad relayed that real-time payments have spurred financial institutions — Bank of America among them — to modernize operations and “keep up with where our customers and our customers’ customers have already gotten to.” For the banks’ corporate clients, there’s value in integrating payments into their existing business workflows — to make “precision” payments whenever they need to make them, and to ultimately boost revenues by giving customers the same options.

“One of the things I love about the U.S. is that actual end-user adoption [of payment solutions] is determined by actual market need,” Weichert said.

Although we’re a long way from real-time payments ubiquity, said Weichert and Ahmad, several types of transactions are already being transformed across the B2B, B2C and C2B landscapes. Among them are insurance disbursements, earned wage access, gig economy worker payments and merchant payments.

Asked by PYMNTS about how real-time functionality can improve the ways in which buyers and suppliers interact in commercial settings, Ahmad noted that real-time payments enable parties to agree on terms that let suppliers get paid faster while offering discounts to buyers.

“When you give the payer more control, you give them more flexibility to respond to their dynamic business needs,” Weichert added.

The Evolution of Earned Wage Access (EWA)

Beyond the confines of B2B payments, several consumer-facing use cases will give a tailwind to real-time payments, Weichert said. One example is earned wage access, where companies offer their employees access to wages outside of the traditional bi-monthly pay cycle.

For many enterprises, she said, “a monolithic approach to payroll doesn’t enable companies to compete in their market … if you want to be a leading player, you need to be responsive and flexible in terms of both how you pay and how you receive payments.”

Digging Deeper on Fraud

Any discussion of faster payments brings with it a discussion of the ways and means through which bad actors will seek to conduct “faster fraud.” Ahmad observed that along with the need for better education through the commerce ecosystem, operating rules that are written for the RTP network have controls in place (such as confirming recipients for consumer senders) that help mitigate fraud. Advanced technologies such as artificial intelligence can help flag anomalous transactions and other issues earlier in the payments flows than would be seen with traditional, batch-based processes.

“We are looking at technologies and product-level solutions that can enhance our ability to proactively identify and stop fraud before it happens,” Weichert said. “We also very strategically use our rules to help ensure that bad actors aren’t initiating at volume on the network.”

Looking ahead, said Weichert and Ahmad, real-time payments will go mainstream because competition for customers is fierce. As Ahmad told PYMNTS: “As folks are educated more on the topic [of real-time payments] and see some of these things that we’re talking about as an opportunity to increase their revenue and their market share … we’ll start seeing that tipping point.”