ACI Blog

TCH, RTP and the FedNow Service: What’s Next for U.S. Immediate Payments?

Central to driving adoption has been the IP services and rails launched over the past couple of years, including Zelle and Real-Time Payments (RTP) from The Clearing House. Both have helped overcome an over-reliance on cash and checks and align some of the varying priorities around payments among banks, consumers, merchants and the government.

The Federal Reserve has also recently announced the planned launch of its own real-time system, FedNow. This will continue to speed up adoption of IP in America, evidenced by recent research from ACI that predicts the US is expected to grow by more than 5x by 2024. We may potentially see further growth, due to the current global health crisis, causing a pressing need to reduce U.S. reliance on paper-based payments and transition to a more extensive digital payments ecosystem. This would facilitate reduced physical interactions and accelerate the speed of disbursed funds, such as government benefits and wages.

Despite – or perhaps even spurred on by – the pressures of the COVID-19 crisis, we’re set to enter a period of increased IP innovation in the U.S., with significant developments that will substantially transform the way payments, and their timing, bring value to customers. For banks, it’s now a case of getting on board with these new systems and working out how and where to best drive IP adoption.

Banks will need to prioritize certain elements of payments to make meaningful gains, such as connecting to schemes in ways that suit their customers’ needs.

Determining priorities

IP has significant potential to provide end users – in the consumer and merchant worlds – with speed, clarity and security. Banks can benefit across the value chain from higher volumes of IP payments going through their systems. Regardless of those benefits, and despite the Fed’s involvement, IP adoption is not mandated in the U.S.

For that reason, it’s important that the next couple of years are not defined by banks simply connecting to IP schemes for the sake of it. Such an approach will not yield the hoped-for benefits banks could see. Banks should be led by their strategic business priorities, pain points and objectives to identify what IP can do for them. They need to look beyond simple gateways to real-time rails and consider the broader benefits of shifting to 24x7x365 operations in a way that make sense for their business.

For example, one bank might be working with legacy payments infrastructure where supporting and receiving batch files is a top priority for corporate customers. While another may see a clear business benefit in being able to support Request for Payment (RfP) for its personal banking customers.

It’s important that banks understand they can be iterative in determining the approach of an IP transformation. The key to a phased approach is recognizing the role of interoperability between banking and IP systems, and technology partnerships.

Connected in the right way – with value-added services

The U.S. has a diverse and varied payments landscape, and for IP to really take off, financial institutions will need real-time-enabled payment hubs with rich functionality for new IP systems, like FedNow, and high-value systems, like FedWire. This breadth of payment services will be one of the keys to success as it allows banks, credit unions, fintechs and businesses to transact with each other.

Meanwhile, players across the ecosystem must look to develop and drive adoption of value-added services utilizing IP. For some, the value-added service may be enabling bill payment to be faster and easier, offering improved control for both the consumer and biller. Consumers will also benefit from streamlining and increasing visibility on cross-border payment transactions. Businesses will also see benefits from IP value-added services. The Fed’s real-time rail, FedNow, will operate on ISO 20022 just as TCH’s RTP does today. This messaging standard enables services, such as automated reconciliation for corporate treasuries, which optimizes processes and saves valuable hours for corporate employees.

Banks will naturally consider the size and disruptiveness of infrastructure projects as they review options to evolve their systems, turning the possibilities of IP into reality. It is vital that they seek out a partner with a background in significant transformation projects that can help them plan their transformation with minimal disruption to business activities.

IP for now and tomorrow

The U.S. has some catching up to do regarding the adoption of IP. But what is reassuring is that with the right support, IP can and will move quickly in this market, creating significant opportunities.

The only note of warning is to those that think that now is the time to pause and wait. FedNow is a prominent move that signals a clear direction for the future of payments in the U.S. In the simplest terms, banks that hold back on IP implementations face a far more uncertain future than those that begin planning now.

Discover why the U.S. market is ripe for real-time payments adoption, particularly in the high-value corporate and billing segments. Read the eBook, “The U.S. Real-Time Opportunity: How to capitalize on adoption rates, transaction volumes and rich data.”

Leader of Real-Time Payments, Americas

Bridget Hall is the Leader of Real-Time Payments for the Americas at ACI Worldwide, responsible for delivering innovative solutions to execute ACI's Real-Time Payments strategy in the region. She has extensive experience in product management, commercial analysis, solution packaging, operations, and finance. Previously, Bridget worked in the securities industry at financial advisory firms, brokers/dealers, and clearing firms as well as corporate disbursements providers focused on enabling digital payments.