By Evan Sparks
In little over one year, from late 2016 to late 2017, three new faster payments solutions went live: NACHA’s same-day ACH functionality, the Zelle P2P network and the Clearing House’s Real-Time Payments service, which was the first new U.S. payments architecture launched in four decades and which went from drawing board to live transactions in about 25 months. “The banking industry has done an incredible job in three years,” says Jane Larimer, COO and general counsel at NACHA.
This stands in contrast to previous eras in payment innovation. “You could almost ensure that the pace of evolution in payments would be glacial,” says Devin McGranahan, senior group president for billing and payments at Fiserv. “Today, we’re seeing increasing momentum.”
In the second quarter of 2018, the Zelle network processed 100 million transactions totaling $28 billion, according the network operator Early Warning Services. P2P adoption more broadly is growing, with 75 percent of millennials using P2P—more than the share that use cash or checks. Even baby boomers and Generation Xers are catching up; more than half of boomers used a P2P app, according to an Early Warning survey.
As of July, 29 financial institutions were live with Zelle, and an additional 119 were in the implementation pipeline. Eighty percent of U.S. demand deposit accounts have access to Zelle, says Ryan Riveland, director of market solutions at Early Warning, and while there have been some wrinkles in implementation—particularly at smaller banks waiting for their core providers to complete the necessary setup and with consumer education around how to minimize risk—the network is poised for further growth.
“Zelle is the chance for the banking industry to take back digital payments from Silicon Valley,” argues McGranahan, who emphasizes Zelle’s positioning as a consumer-driven brand. Early Warning and its member banks are putting up the marketing budget to make Zelle as much of a household name as Paypal’s Venmo.
For a consumer-oriented solution like Zelle, “the demand is there,” adds Tom Rea, EVP at U.S. Bank. “The business side is a little more challenging.” The Clearing House’s RTP is aimed at that business user, and with more diverse use cases, adoption has been slower, explains McGranahan, with RTP ubiquity expected around 2020.
But “the big banks are lighting this up,” he adds. “Their clients are going to be able to send real-time TCH payments. There’s going to be a real demand pull from your clients as they start to receive RTP payments.”
One advantage of RTP is its operational and conceptual simplicity. “There’s no third-party authorization stream because there’s no third party involved,” says Steve Ledford, SVP for product and strategy at the Clearing House. “It puts customers in charge of their payments.” Plus, he adds, the simple credit push system “limits the number of vectors of attack for cyber criminals.”
Designing a system for both ubiquity and simplicity required giving up the ability to revoke payments, however. “When you’re dealing with thousands [of financial institutions], it becomes untenable to manage that risk,” says Ledford. Which is where same-day ACH adds its own value. While it isn’t a real-time product, Larimer notes that it can be handy for wires for large-dollar purchases where the sender needs revocability—it just won’t be real-time. “It’s a batch system and it might potentially be four windows a day.”
What’s clear, however, is that the move toward real-time is inexorable. “Real-time is going to happen,” says Larimer. “For midsize or smaller financial institutions, five or 10 years from now they have to be in this space.”
“It’s all a matter of timing,” adds Rea. “Understand the length of your runway . . . but you’ve got to do something sooner or later.”