Posted by Alison Arthur on 30 Apr 2018
The buzz around faster payments seems to be getting louder and louder. And for good reason. As consumers grow more accustomed to receiving goods and services on-demand, they’re also coming to expect the same from their payments. Faster payments are designed to move funds near-instantaneously from payer to payee, expediting everything from payroll distributions to bill payments.
“Faster payments” is an umbrella term for different payment systems that various entities have launched in support of quicker on-demand payments. In this blog post, we’ll outline four of the major systems that have evolved in support of faster payments.
The Clearing House: Real-Time Payments (RTP®)
Last year, The Clearing House (TCH) launched its real-time payments (RTP) system, the first new core payments infrastructure launched in the US in over 40 years. RTP is a payment network, or “rail”, that allows businesses and consumers to send, clear, and settle payments instantly. The infrastructure is designed with both speed and safety in mind, conforming to consumer protection criteria that help prevent fraud and misuse.
The introduction of RTP allows the US to catch up to other countries, including the UK, South Africa, and Brazil, that already have 24/7 RTP systems in place. TCH’s system supports fund transfers, payment requests, and two-way communication between parties. The infrastructure is built to help facilitate financial transactions between businesses and consumers including bill payments, insurance claim payouts, and invoicing. RTP is open to all US financial institutions and TCH’s goal is for it to gain ubiquity by 2020.
Early Warning Services: Zelle®
You’ve heard of Zelle, right? If you haven’t used it or seen the catchy commercials yet, Zelle is a quick and easy way for people to move money between personal bank accounts. Launched by Early Warning Services in 2017, Zelle is a faster payments network that allows users to send money to one another by simply using an email address or a phone number to link their accounts. Zelle is accessible from participating banks’ websites, the Zelle app, and other mobile apps.
From the date of its launch, Zelle became one of the biggest faster payments networks with nineteen financial institutions participating. This large number of participating financial institutions meant that Zelle provided access to approximately 76 million bank accounts, giving it tremendous reach and ubiquity from its onset. Zelle was built to facilitate person-to-person payments, without the need to physically exchange cash or write a check. The transfer of funds is near-immediate, meaning that people receive money faster than ever.
The Card Networks: Mastercard Send™ and Visa Direct
Perhaps the most well-known payment brands of them all – namely Mastercard and Visa – are staking their claim in faster payments as well. These well-established brands operate tried and true networks that have moved money via credit and debit card transactions for years. They are now leveraging their networks to join the faster payments revolution.
Traditionally, debit cards have facilitated “pull” transactions, meaning that the merchant accepting the card for payment was “pulling” funds from the underlying customer. Visa Direct and Mastercard Send are now flipping the sequence and using debit card accounts to pull funds from businesses or merchants and transfer these funds directly to consumers’ debit cards. This can facilitate everything from government benefit payouts and insurance claim payments to wages earned by contract workers in the gig economy. Given the ubiquity of Mastercard and Visa cards around the world, it also opens the possibility for fast, frictionless cross-border payments.
NACHA: Same Day ACH
The Automated Clearing House (ACH) Network is one of the largest payment systems in the world and has a 40+ year history of moving money between financial institutions. ACH is the backbone of many financial transactions that people have come to depend upon, from electronic mortgage payments to direct deposit of payroll and payment of government benefits.
Historically, payments made via the ACH network took one to two business days to settle. In 2015, an amendment to the National Automated Clearing House Association’s (NACHA) Operating Rules was announced to speed up the settlement of payments made via the ACH Network. This amendment, known as Same Day ACH, was designed to enable the same-day movement of money for almost any ACH transaction.
Same Day ACH was implemented in a three-phase approach as follows:
Phase 1: Applied to credits of up to $25,000 only. Phase 1 created two file submission widows (10:30 am ET and 2:45 pm ET) and two settlement times (1:00 pm ET and 5:00 pm ET). Funds were made available to the receiver at the end of the business day when the file was submitted. Phase 1 became effective on September 23, 2016.
Phase 2: Extended same day settlement of debits in addition to credits. The file submission windows and settlement times mirrored Phase 1. Phase 2 became effective on September 15, 2017.
Phase 3: Accelerated the availability of funds to the receiver from end of the day when the file was submitted to 5:00 pm (local time) on the day that the file was submitted. Phase 3 became effective March 16, 2018.
Are people using Same Day ACH? NACHA reported that Same Day ACH debit and credit transactions totaled 15.2 million in December 2017, an increase of 51 percent over the volume recorded in November 2017. One can only imagine that these numbers will continue to grow now that all three phases of Same Day ACH have been implemented.
The Bottom Line: The desire for faster payments has driven significant innovation in payment networks over the past several years. This has resulted in the evolution of established networks (ACH, Mastercard, Visa) and the development of new ones (Zelle, RTP). Stay tuned for more updates related to faster payments on our blog.