The rollout of faster (or immediate) payments solutions continues to gather pace in the US, with greater consumer expectations and improved technological solutions among the key drivers for change.
But how are the rollouts of these initiatives changing the way citizens and businesses manage their finances? And where can we expect things to change in the coming months and years?
A growing technology?
Over the last couple of years, there have been several key solutions introduced to the US to facilitate faster transfer of funds between consumers or businesses. Last year, for instance Early Warning announced the launch of a new bank-to-bank good funds network to support the faster availability of guaranteed funds – using NCR’s Authentic software.
Meanwhile, it was recently noted by PYMNTS.com’s latest Faster Payments Tracker that “overwhelming consumer demand” for secure, efficient and streamlined payments solutions has led to interest in Faster Payments extending beyond financial institutions to enter the thinking of many companies and federal agencies.
While such solutions have yet to gain widespread use, it noted that digital financial solutions that allow consumers to access finances quicker are winning over end-users.
For instance, it highlighted a report from NACHA that revealed 82 per cent of US employees are now remunerated by Direct Deposit via ACH, compared with 74 per cent in 2011. What’s more, 87 per cent of those surveyed indicated they are highly satisfied with the solution – primarily because it offers them faster access to their pay. With same day ACH scheduled for later this year that will only increase the satisfaction levels.
More than half of consumers (53 per cent) highlighted faster access to their funds as a key benefit, while the fact there is no cost (47 per cent), decreased risk of losing a paper check (38 per cent), safety factor (37 per cent), and convenience (37 per cent) were also among the main drivers for Direct Deposit use.
Increasing industry support
This increasing consumer demand is also being supported by the financial industry. For instance, US Bank has stated that it will not charge an additional fee for real-time payments, reversing their earlier stance. This will be crucial in helping to make instant payments a standard option for transactions in the coming years, rather than something that is viewed as a premium service.
What’s more, the technology isn’t just being used for consumer transactions, as B2B and B2C payments are also signing up.
BNY Mellon, for example, has started using Early Warning-owned ClearXchange (CXC) to deliver corporate disbursement payments in real-time to consumers. This is a particularly interesting development, as CXC was generally seen as a person-to-person platform, competing with Paypal’s Venmo in the mobile payment space. With CXC’s large registry of consumers we are likely to see more in this direction with Government and other corporate to consumer payments especially as the payment can be made without knowing the consumer account specifics.
The next steps for the sector
The interest in Faster Payments has not gone unnoticed by regulators and legislators in the US. The Federal Reserve, for instance, has a task force devoted to facilitating the rollout of the technology, and has recently been soliciting requests for proposals on how to move forward.
Before the deadline of May 27th, industry players submitted 22 ideas, which will now be evaluated by McKinsey, looking at issues like ubiquity and interoperability.
However, it does appear that an industry-led approach will be the way forward for Faster Payments. Sean Rodriguez, the Fed’s senior vice-president and Faster Payments strategy leader, commented: “I have come to the conclusion after all this work that a legislative mandate probably isn’t the best way. A solution generated and created by a broad range of stakeholders will end up providing faster capabilities in a way that not only makes sense to people, but ultimately gets adopted.”
The Early Warning schemes are attracting a lot of interest and they provide real time connectivity across their member/owners with access to over 65% of US consumer accounts and 25 million registered consumers.
Meanwhile, Kathleen Oldenborg, director for Payment Systems Policy at the Office for the Comptroller of the Currency, has observed the industry is now heading into a new, technologically-driven phase, where solutions such as API, open architecture and apps are set to transform the US payments market.
“The magnitude of change brought about by Faster Payments will allow the financial industry’s capabilities and options to better serve customers, companies, and communities,” she said.