By Tina Giorgio
Last month, I sat down with ICBA Senior Vice President of Payments and Technology Policy and ICBA Bancard Senior Vice President of Industry Relations Deborah Matthews Phillips to discuss next steps in our new faster payments paradigm. Our dialogue yielded such deep information that I decided to continue the conversation in this month’s “Tina’s Take,” diving into Same Day ACH, competition, fraud, and strategic vision.
Tina: What exactly is faster payments? Is it The Clearing House’s RTP® system? Is it instant payments? What about Same Day ACH?
Deborah: When we were forming the U.S. Faster Payments Council, there was some debate on this topic. Instant payments—that’s the term FedNow(SM) uses to distinguish from RTP, which is the brand name for TCH’s real-time payments solution for real-time clearing and settlement, within seconds. “Faster payments” as a definition loops in other payments with accelerated clearing, like Same Day ACH, which is not real-time or instant payments.
But it's important not to leave Same Day ACH out of the faster payments conversation. The fact that beginning in March of next year the threshold will increase to $1 million is going to drive additional use and adoption.
Tina: To that point, Same Day ACH and RTP volumes both are growing, and we’re now seeing tangible use cases for faster payments. So, where are faster payments being used today?
Deborah: We’re starting to see a groundswell around new use cases for real-time payments, whether it’s earned wage access, gig payments or even payroll. There are some large payroll companies that are now using the RTP network and lots of new use cases—some of which weren’t originally anticipated.
Tina: Speaking of earned wage access, there are some industries where employees are getting paid more than once a day.
Competition—including big tech competition—is huge. But the research has shown that 37 percent of consumers said if their bank offered the same solution, they would switch providers because they still feel their bank is more trustworthy and more secure than these financial technology companies who do nothing but money movement and don’t have deposit insurance.
Deborah: Your point about these alternative payment models that do not have the level of trust that community banks have is spot on. Trust is a huge consideration. There have been some negative stories in the media about some of the alternative payment models and lack of resolution avenues for customers. That’s one advantage community banks offer: customer service. When there’s a problem, customers expect their community bank to help them, and they get it.
Tina: In addition to competition, I also worry about fraud. With real-time or instant payments, once it’s gone, it’s gone. So, the question is, do faster payments actually equal faster fraud?
Deborah: I don’t think we’re seeing a lot of fraud with RTP at this point in time, and I’m encouraged to hear that the Fed is building some fraud tools in the design of FedNow, and RTP has deployed some tools at the network level. But remember, it’s a partnership. Financial institutions that are working with these networks also must comply with requirements to deploy fraud monitoring tools. For example, because the payments are processed instantly as irrevocable transactions, strong authentication before the transaction is executed is critical.
And fraud itself is bigger than a single payments network. All stakeholders need to work together to fight occurrences like account take over, which is not unique to instant payments, but has the potential to be a threat vector for them. Fraud is an area where we can never get complacent.
Tina: I agree 100 percent. But with so much to consider as a community bank looking at faster payments, how do they choose? What should be included in their planning strategy?
Deborah: Start by mining for metrics that matter. The reality is that there are transactions leaving community bank environments to go to alternative providers. It’s important for a community bank to size up the threat that these alternative providers pose. And then, look internally and plan for how faster payments might impact their organization operationally, from a compliance and risk mitigation perspective, and understand potential new requirements from a customer support perspective. Being responsive to customers’ needs in the moment is an opportunity for community banks to continue to deliver on their legacy of unparalleled customer support.
For more information and resources on faster payments, visit ICBA’s Faster Payments Resource Center. To explore where faster payments fit in your payments strategy, leverage ICBA Bancard’s Payments Strategy Assessment Tools.