Are Faster Payments Fast Enough For A Real-Time World?

ACH speed-up really needs to be just the beginning as consumer expectations ramp up for real-time payments.

 

By PSCU

 

We’re in the Age of Now. Companies like Amazon have trained us to expect fast delivery of goods and services, yet money still moves no more quickly than within a bank’s daily hours.

But that’s all changing.

“Faster money” services have emerged to satisfy the need-for-speed of millennials and anyone else who no longer wants to wait.

While faster payments solutions continue to be a topic of discussion based on recent trends and growth reports, there are many questions that remain to be answered as to how effective and efficient faster payment methods truly are. Are faster payments fast enough for the next generation? And should real-time payments be the ultimate goal?

Making Faster Payments “Faster”

When considering faster payments solutions and their efficiency, credit unions need to consider through what rails transactions are being processed and how quickly funds are made available to the receiving bank or credit union.

For example, does the solution require transactions to be sent for processing or posting through the Automated Clearing House (ACH) rails? Because they involve a batch file process, ACH payments can only be sent at certain points throughout the day for processing versus real time. Imagine trying to teach millennials about how batch processed transactions work. Today’s credit union members, many of which are millennials, are used to requesting an Uber and having it arrive within minutes, if not seconds, resulting in a seamless experience.

While ACH rules do provide multiple windows to send transactions, it’s up to the sending credit unions how often they use this option. With faster payments, the sending institution may guarantee funds to the receiving institution, but it still doesn’t provide the benefits of a true real-time payments solution — instant send and instant receive.

The expectations of members across the board are universally similar. Payments systems must deliver instant, on-demand and seamless transactions. While legacy systems will take years to convert to the expectations of today, the ultimate goal is to move toward real-time payments systems. This is what we as a society — and our credit union members — expect in today’s always on and interconnected world.

The Road To Real-Time Payments Systems

Some companies in the payments industry are determined to find ways to make faster payments transition into more real-time payments. Owned by the world’s largest commercial banks, The Clearing House is working to change payments processing to meet consumer expectations by bringing the real-time payments platform Vocalink, which is already supported in the U.K., to the U.S.

The Clearing House wants to create value through delivering a real-time payments solution — a “send” transaction sent in real time, a “receive” transaction that is received immediately after it is sent, and a “settlement” transaction that relies on funds being available in an account to settle the transaction. The benefits associated with solutions like that of The Clearing House enable organizations to deliver a real-time payments platform and unique product solutions that can be custom branded.

Real-Time Payments All The Time

The payments industry is ripe for change. It is through understanding member pain points, designing new product solutions, and looking to a future where real-time payments meet unidentified needs that we will succeed.

We’re only at the beginning of the phenomenal payments shift that aligns with the real-time expectations of emerging generations. Movement toward real-time payments is the future, but it’s also now.

PSCU engaged with Glenbrook Partners on a white paper, Money in the Age of Now, that provides insights into faster payments. It can be downloaded here.

Dr. Debbie Bartoo focuses on creating innovative new service offerings in financial services. Her experience spans innovation, strategy and analytics in digital channels in the banking and payments industry. She has been involved in various industry initiatives, including the Federal Reserve Secure Payments Task Force, their Directory Working Group and the U.S. Payments Forum Card-Not-Present Fraud Working Committee.

 

 

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Sept. 10, 2018


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