To mark the fifth anniversary of real-time payments in the US, the Clearing House (TCH) and Jack Henry donated a stream of data that cast a somewhat hazy blur on the subject.
TCH says its RTP network reaches 62% of all demand deposit accounts in the US and 85% of insured depositories have technical access to the network through more than 20 technology solution providers, including Jack Henry & Associates, FIS, Fiserv , C.O.C.C., Finastra . and Shazam. The Clearing House is keen to show that it provides services to smaller banks and credit unions and is not just a network for large banks.
Jack Henry, who primarily serves community banks and credit unions, starts on the other side of the data and says the majority of RTP users – 60 to 65% – are Jack Henry users. It counts as connecting 180 financial institutions with RTP through the payment center. When counting the financial institutions that have used Jack Henry for Zelle, the total number of users making real-time payments on his technology rises to 400.
While Jack Henry’s financial institutions are numerous, they tend to be smaller institutions. Ait-Novarica, a financial technology research firm, says, “1,736 banks and credit unions are alive with one of Jack Henry’s major banking offerings, seven of which have more than $10 billion in assets.” Community banks 1,020 and credit unions 695 with less than $5 billion in assets. (p.62)
The RTP network processed 45 million transactions worth $19.7 billion in the third quarter of 2022, TCH said, marking the first of 16 consecutive quarters of RTP volume growth of more than 10% quarterly since 2018, it said TCH.
No figures are available on what percentage of bank payments in the US are now real-time.
Payment experts expect more banks to sign up on both networks once FedNow goes live next summer, as it will generate a new level of real-time payment awareness.
As I wrote in January 2019, the smaller banks do not trust TCH and want the Federal Reserve to start a new RTP system quickly.
It didn’t happen quickly. In 2019, the Independent Community Bankers of America (ICBA) urged the Fed to act quickly and reminded the Fed of its goal of a real-time payment system by 2020. The Fed now expects the rollout to begin in July 2023.
Chris Skinner, a digital banking expert who writes for the blog The Financier, reported that a friend from the US, who declined to be identified in further detail, said only one in 10 banks in the US was ready for FedNow.
“The challenge for many banks, especially when dealing with smaller U.S. banks and credit unions, is that enabling real-time payments entails a structural change.”
Tedde Forman, president of payment solutions at Jack Henry, said his payment center allows banks and credit unions to plug and play and connect to the clearing house’s real-time network. JHA PayCenter supports Jack Henry core banking systems and third parties.
“The Payments Hub virtually eliminates the underlying technology and staffing challenges faced by financial institutions that choose to build and maintain direct connections to one or more high-speed payment networks,” said Forman. If the core is in the cloud, the payment hub can be completely cloud-based. Otherwise, they added a piece of the hub on-premises or in Jack Henry’s private cloud.
“If FedNow Rail is available, they have equal access. So implementation really becomes a key issue for Jack Henry Bank.”
He added that Jack Henry suggests that his users sign up for RTP now to understand how real-time works, such as back-end tuning changes ahead of the Fed’s launch.
“It really gives them a chance to walk before they run.”
Foreman said he doesn’t think real-time payments are the focus of many bankers, in part because the Fed hasn’t done everything possible to educate and promote the topic.
“I think there’s an opportunity for the Fed to spread its talk to all financial institutions in the community so they understand the value and benefits of real-time payments.”
Forman thinks the younger generation will leave in real time. While banks have their own bill paying apps, they often require the user to go to the bank’s website and designate a company to make the payment, then work through the bank’s internet site. Young mobile-first users are more likely to go straight to the sender because they know their account will be credited immediately, even if it takes a few days for the money to arrive through ACH. Banks could lose those customers unless they implement real-time payments and explain to customers how it works.
“Financial institutions are beginning to understand that they need a payment strategy. I believe the exchange revenue will slowly cannibalize.
For now, use cases for real-time payments are scarce. Foreman suggested that users can open an account and fund it immediately. But how often does this happen? Others have suggested that insurance companies may have a competitive advantage by paying claims in real time, but since claims do not come until months or years after a person signs a policy, the competitive advantage seems marginal. .
“Not all third-party solutions that can take advantage of RTP have been built yet,” says Forman, who expects early examples to be found in commercial banking and companies looking to improve treasury management.
He expects real-time payments at community banks to increase as the Fed launches FedNow. “So we work hand-in-hand with the Fed. We even worked with them to help build them because we were one of the first processors to go live with TCH. Next month we will have a certification with them.”