Banks Turn Real-Time Payments Into Customer-Focused Products
Banks are moving beyond simply connecting to real-time payment networks as financial institutions focus on building customer products around instant payments, according to Jim Colassano, senior vice president of product development and strategy at The Clearing House (TCH). The shift requires banks to modernize back-office systems, rethink payment routing and make the customer experience independent of the underlying payment rail.
Real-Time Payments Require More Than Network Access
Joining the RTP® network gives banks the ability to receive instant payments and provide customers with immediate access to funds 24 hours a day. But Colassano said this represents only the starting point for financial institutions.
The next stage involves enabling customers to originate RTP payments through digital channels and developing products and use cases that take advantage of the network's broader capabilities.
“The strategic element comes into play as they enable the ability for those clients to originate RTP payments through their various digital access channels,” Colassano told PYMNTS, “and when they start developing products and use cases that leverage the expansive capabilities of the RTP network.”
Technology providers have made network connectivity easier for banks, reducing one of the challenges faced by early participants. The more complex issue is adapting internal processes that were designed around traditional payment systems.
Banks Must Rethink Legacy Back-Office Systems
Traditional bank back offices have largely been built around batches of transactions that settle several times during a business day, with exceptions typically handled afterward.
Real-time payments operate differently. Each transaction is cleared and settled individually and immediately, around the clock.
“The RTP network and instant payments generally breaks that model because every individual transaction now gets cleared and settled individually, instantaneously, 24 hours a day,” Colassano said.
As a result, monitoring applications, data systems and other controls used before transactions are posted must also function in real time. While banks and technology providers have gained more experience with the technical requirements, institutions still need to modify processes built around legacy payment rails.
Customer Needs Should Drive Payment Routing
For customers, the technical infrastructure behind a payment is less important than the outcome. Colassano said banks should focus on what customers want a payment to accomplish rather than requiring them to understand the differences between RTP, ACH and wire transfers.
Moving money between accounts belonging to the same consumer or business is one of the simplest examples. The funds can move from one financial institution or wallet to another and become available almost immediately.
“They can see the money moving out of their one account, and then within the blink of an eye, they can see the money coming into the other account and being available to them,” Colassano said. “That’s almost visceral to clients.”
Beyond speed, real-time payments offer attributes such as payment finality, confirmation and 24/7 availability, which can be particularly valuable when recipients need certainty that funds have arrived before completing a transaction.
Instant Payments Expand Into Specialized Use Cases
Vehicle transactions provide one example of how those capabilities can translate into customer-focused products.
Colassano cited Driveway.com, which can purchase a vehicle at a customer's home and issue an instant payout as the car leaves the driveway. In such a transaction, the seller needs both the money and confirmation that it has arrived at the moment the vehicle changes hands.
Similar requirements can apply to early wage access, gig work and business-to-business payments, where payment timing can be closely tied to the completion of work or the transfer of an asset.
The Clearing House raised the transaction limit on its RTP network to $10 million last year, and Colassano said business activity has increased as a result. For larger transactions, the ability to send payments 24/7, confirm receipt and achieve settlement finality can be as important as speed itself.
Banks Do Not Need to Replace Traditional Payment Rails
The growth of real-time payments does not mean every transaction should move to the RTP network.
Colassano said The Clearing House did not design RTP to replace ACH, wires or other established payment systems. Instead, instant payments were intended to address situations in which traditional rails could not easily support transactions outside normal operating hours or transactions requiring immediate and final settlement.
That creates a broader product-design challenge for banks: determining how much responsibility customers should have for selecting the appropriate payment rail.
Some financial institutions are instead organizing payment services around customer priorities. A payment that needs to arrive immediately, be final and remain available around the clock can be routed through RTP, while a non-urgent transaction may be better suited to ACH.
“The banks who are getting it better, or doing it well, are not making it necessary for the customer to understand the rail,” Colassano said, “but having the customer tell them what they want that payment to do, and what are the priority attributes of that payment, and letting the bank route it to the appropriate rail.”
Payment Infrastructure Is Becoming a Unified Service
This approach allows banks to treat RTP, ACH, wires and FedNow as different infrastructure options operating behind a single payment experience rather than separate technical products that customers must choose between.
The bank can determine which rail best matches the customer's requirements, including timing, finality and other payment attributes.
“What we see in terms of the evolution of the market [is] looking at payment processing holistically and no longer as a silo,” Colassano said.