The Impact of RTP to the Mobile Payment Ecosystem

Attila Csutak, Faster Payments, Vice President, City National Bank

The payments industry in the United States stands at the height of a complete digital transformation. Rapidly changing technology innovations are pushing how consumers and business expectations evolve with payments.

In the last seven years, the U.S. has made up for lost time and is slowly closing the gap with its European, Latin American and Asian counterparts. Five new distinct faster payment methods are now available to accelerate B2B, B2C and P2P transactions:

- SameDay ACH

- Debit Cards Push services like

• Visa Direct service

• MasterCard Send™

- Early Warning Service’s Zelle®

- The Clearing House’s RTP® network

- The Federal Reserve Banks’ FedNow SM Service

SameDay ACH is perhaps the most ubiquitous faster payment method in the U.S., which enables its users to pay almost any business or person with a checking or savings account, using the established ACH (Automated Clearing House) network. Any domestic ACH transaction under $1MM (credit and debit) can now qualify for same day processing, only international payments are exempt. SameDay ACH still needs a payee’s bank account and routing number, but unlike regular ACH payments which take 1 or 3 days, same day payments settle in just hours, by 5:00 pm local time.

The Debit Card Push service from the two major credit card companies in the world, uses the VISA and MC merchant system to move funds. In the same way that merchants push a credit for a product return, businesses can now issue a credit to a checking or savings account for any type of B2C payment. Funds are available to consumers in just minutes, for businesses there is less risk, as the service requires only a debit or credit card number and expiration date, there is no need to capture and store sensitive bank account numbers in their system.

Settlement is not necessarily real-time all the time; Zelle is backed by more than 1,800 banks and credit unions. Consumers can sign up through their bank or directly with EWS via the Zelle Purple App. Funds move quickly, electronically and securely between bank accounts.

RTP (Real-Time Payments) is the first new bank to bank payment system in the U.S. for over 57 years, payments can occur 24 hours a day, with settlement taking place within seconds. The first $3.50 transaction was moved between a U.S. Bank and BONY account in under 15 seconds on Nov 13, 2017.

FedNow is a new interbank clearing and settlement service that facilitates instant payments 24x7, 365 days a year. This separates the system from Automated Clearing House (ACH) and Fedwire (the Federal Reserve’s system for large payments), which only operates during standard banking hours.

Faster Payments are faster than legacy payments that take up to several days or weeks in some instances, but it is still slower than Real-Time Payments. For clarity, all Real-Time Payments (or Instant Payments) are Faster Payments, but all Faster Payments are not Real-Time Payments.

Faster Payments are accelerated payments from legacy rails that reduces payment times between banks’ customer accounts from days to the same day (e.g., SameDay ACH – end of day). While Real- Time Payments/FedNow combines immediate funds availability, settlement finality, instant confirmation, and integrated information flows – all made in under (15 to 20) seconds.

Real-time payments already had a transformative impact on the mobile payments ecosystem, reshaping the way individuals, businesses, and financial institutions conduct transactions through mobile devices. This shift is driven by several key factors:

1. Speed and Convenience - Real-time payments offer an unparalleled level of speed and convenience. Mobile payment apps and platforms can leverage real-time payment functionality to provide users with instant transfer capabilities. This immediacy enhances the user experience and encourages more people to use mobile payments regularly.

2. Increased Mobile Payment Adoption – the integration of Real-time payment functionality within mobile payment apps has the potential to drive adoption. Users are more inclined to rely on their mobile devices for transactions when they can initiate and receive payments in real-time, reducing the need for cash or traditional card-based payments.

3. Contactless Increased Mobile Payment Adoption – Real-Time Payments will accelerate the adoption of contactless integration of Real-Time Payment functionality. We are going to see mobile wallets like Apple Pay and Google Pay leverage Near Field Communication (NFC) technology for secure and contactless transactions. There is some gap left to catch up to how other countries, Brazil and India, use Q.R. code-based payments, making use of information contained in the barcode-looking image about the merchant and payment provider to complete a transaction.

4. Improved Security Measures – Real-Time Payments will speed up advancements in mobile payment security. Features like biometric authentication, tokenization, and real-time fraud detection will become more prevalent, making mobile payments more secure and trusted by users.

5. Improved Security Measures – Real-Time Payments will speed up advancements in mobile

6. Cross-Border Mobile Payments:

Real-time payment systems have made cross-border mobile payments more accessible and cost-effective. Users can send money internationally in real-time, reducing the reliance on expensive remittance services. This has significant implications for international commerce and personal transactions.

7. Improved Security Measures:

Real-time payments have sped advancements in mobile payment security. Features like biometric authentication, tokenization, and real-time fraud detection have become more prevalent, making mobile payments more secure and trusted among users.

8. Enhanced Financial Inclusion:

Real-time payments have played a crucial role in extending financial services to the unbanked and underbanked populations through their mobile devices. Mobile-based real-time payment systems have enabled individuals in remote or underserved areas to access and manage their finances, reducing financial exclusion.

9. Fintech Innovation:

Real-time payment APIs and platforms have become essential tools for fintech startups. These companies leverage real-time payments to create innovative financial products and services delivered through mobile apps. This competition drives continual improvement and innovation in the mobile payments ecosystem.

10. Data Utilization and Personalization:

Real-time payments generate vast amounts of transaction data. Mobile payment apps and platforms can utilize this data to provide personalized recommendations, offers, and financial insights to users, creating a more engaging and tailored mobile payment experience.

11. Regulatory Frameworks:

The rise of real-time payments within the mobile payments ecosystem has prompted regulatory bodies to develop frameworks and guidelines specific to mobile-based financial services. These regulations aim to ensure consumer protection, data security, and fair competition in the mobile payments space.

12. New Business Models:

Real-time payments have spurred the development of new business models in the mobile payments ecosystem. Subscription-based services, microtransactions, and app-based marketplaces have gained traction due to the ease of payment afforded by real-time systems.

Conclusion:

Real-time payments have revolutionized the mobile payments ecosystem, driving increased adoption, improving convenience, and expanding the range of services available to users. As real-time payment technology continues to evolve and integrate further with mobile devices, the mobile payments ecosystem will remain at the forefront of digital transformation in the financial industry, offering users seamless, secure, and efficient payment experiences through their smartphones and tablets. This evolution will continue to shape how we conduct transactions and manage our finances in an increasingly mobile and digital world.

Financial

Fraud

Data Security

Startups