Payments in Real Time
As the U.S. payments industry is preparing to enter another exciting phase as immediate funds transfer options come online, I’m thinking back to my interaction in the Fall of 2013 with the inquisitive team at Planet Money. Perplexed about why it took so long for the monies from their Kickstarter fundraising campaign to make the electronic journey to their bank account, the team dug into this issue and created one of their podcasts called The Invisible Plumbing of our Economy.
All told, it took five days for the funds to reach them. Keen to understand why the transfer was so slow, Planet Money reached out to a few payments experts to try and make sense of it. Naturally I had hoped to communicate the complexity and competitiveness of the U.S. banking and payment systems, the fact that our low-cost ACH was designed in the 1970s and the daunting economics of upgrading or implementing a system that reaches thousands of financial institutions serving some 300 million consumers. Alas, in the end, I think my most effective explanation for this admittedly outdated situation was, simply, “The ACH keeps bankers’ hours.”
It’s taken another three and a half years but in 2017, new payment systems are coming on line that will totally transform how many payments are made. Zelle and the new Real Time Payments rail from The Clearing House are joining contenders like PayPal.
Just for fun, let’s imagine that the Planet Money transaction was being kicked off today and see how different the experience would be:
- End to end time – Rather than 5 days, the transfer should take no longer than a few seconds to register in the receiving account.
- Batches – The transfer would be a single, credit transfer instruction and wouldn’t have to wait until the next payment batch is scheduled.
- Business hours – These will be all day, every day.
- Business days — Every day is a business day for real time payments, including weekends and holidays.
- Funds availability – Funds will be available to be withdrawn immediately by the receiver, no more waiting for good funds. Funds will also be taken out of the sender’s account immediately before the transfer is made.
- Confirmation – The Planet Money team would also get an email or text confirmation that the funds are available in their account. No more guessing. The sender would also be notified when the transfer is complete.
In this sense, payments will work a lot like email – always available and instant. Well, okay, it’s not quite like email just yet:
- Transfers initiated in the Zelle, Real Time Payments, or PayPal rails don’t interoperate in the same way AOL does with Gmail (or ATT with Verizon), and
- These transfers don’t work internationally (unless you’re a PayPal user sending to another PayPal user and even then a few caveats apply).
I’ll dive more deeply into these issues this week—and what they mean for consumers and businesses—with great panelists from ACI, Fiserv, NACHA (yes, Same Day ACH is in the mix as well) and SunTrust Bank at the Technology Association of Georgia FinTech 2017 event in Atlanta on 9 February. I hope you can join the discussion!