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CoverStory

RTP has been gaining traction with bill payments, P2P and A 2018 report prepared by Aite for Visa, North America
emergency disbursement applications, said Steve Ledford, insights on real-time payments, reveals significant oppor-
THC's senior vice president for products and strategy. tunities to leverage real-time payment options for faster
TCH is readying some new applications, including a pay- funding of disbursements, including for merchant cash
on-demand app that would allow businesses to make in- advances. Today, most businesses disburse funds by
stant payments to workers, but it's "trickier to do [instant check, ACH or cash. In 2017, 56 percent of disbursements
payments] at the point of sale," Ledford added. took between two and 14 days to reach recipients, the Aite
report noted. Moving these disbursements to a new, real-
The credit nature of the transactions, associated risks and time option could generate savings of between $1.2 billion
instantaneous nature of RTP aren't necessarily a good and $2.4 billion a year, with most of the savings realized
combination. "There's a significant chargeback opportu- by payers, according to the report.
nity, which can be frustrating," said Carrie Blankenship,
director, product management, instant and emerging pay- "The demand for faster payments across all market sectors
ments, at Fiserv. included in this study is clear – most payers believe recipi-
ents want to receive payments faster," the report stated.
One way to address the potential for credit card charge- "North American consumers report that for 62 percent of
backs in a real-time payments environment is with addi- funds disbursement received, they would be likely to opt
tional layers of security, such as tokenization schemes that in for a real-time payment method if it were available, and
mask card numbers and other authentication details. "You 96 percent of North American merchants report that they
can add layers of protection in a real-time world," Blan- would be likely to opt in to real-time payments if the price
kenship said. "It's a safer environment." The appeal for re- remained constant."
tailers considering new payment alternatives isn't really
about speed, added David Shipper, senior analyst at Aite Fed enters the fray
Group. "The opportunity to lower cost is really more im- Outside the United States, all real-time payment platforms
portant." operating or in process have central bank backing. These
include networks in Australia, Canada, the United King-
Cost savings are driving some retailers to issue debit cards, dom, Europe, Mexico, India and Sri Lanka, Baldwin noted.
Grotta noted, but not to the exclusion of traditional credit The Federal Reserve is trying to play catch up, building
cards. She pointed to several private-label debit cards – a round-the-clock, real-time payment and settlement sys-
Target's RedCard, convenience store chain Cumberland tem, FedNow, to compete with RTP. (The Fed already com-
Farms' SmartPay and the GasBuddy card among them. petes with TCH for check and ACH clearing services.) But
These so-called decoupled debit cards offer discounted FedNow won't be available for several years.
prices or other rewards to encourage usage; payments
clear through the ACH. The faster clearing options of- Among the Fed's many roles is to provide payment clear-
fered by same-day ACH could encourage other merchants ing and settlement services to all federally insured finan-
to follow. cial institution that request those services. And histori-
cally, small banks and credit unions have used the Fed
"They [retailers] could replace [ACH clearing] with a re- to clear and settle interbank transactions rather than use
al-time transaction network for instant access to funds," upstream correspondent banks.
Grotta said. But she doesn't see retailers discontinuing
Visa and Mastercard acceptance in favor of decoupled "Smaller banks are leery of getting into bed with large
debit programs. "That would be a dangerous strategy," competitors," Baldwin said. But the Fed's clearing and set-
Grotta said. "I think if they decided not to take Visa or tlement services are available today only during limited
Mastercard they'd lose too many customers. hours Monday through Friday, and are closed on week-

Faster funding options ends and national holidays. While FedNow will remove
those constraints, creating a 24/7/365 clearing and settle-
While retailers aren't likely to do away with credit card ment environment for bank-to-bank transactions, that
acceptance for real-time payment alternatives, it doesn't won't happen before 2024, which could lead many finan-
mean they can't benefit. Real-time payments can be lev- cial institutions to opt for RTP. "A lot of financial institu-
eraged to add value to business relationships. "Merchant tions may not want to wait for the Fed," Baldwin added.
settlement has been a hot area," Ledford said, adding that
RTP could support same-day funding of merchant ac- Many may wait, however, since moving to a real-time pay-
counts. "This could be a real differentiator for merchant ment platform is not as simple as flipping a switch. "Mod-
acquirers," he noted. Merchant cash advance companies ernizing payments to capitalize on next-gen technology
could also leverage a network like RTP. Real-time payment involves a lot more than creating a nice front-end mobile
networks "could make merchant cash advances a more ef- or web app," said Steve Murphy, director of commercial
ficient process" by ensuring quicker access to funds, said and enterprise payments at Mercator.
Brian Riley, director of Mercator's credit advisory service.

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