By Patti Murphy
Proscribes Inc.
I have a confession to make. When the Federal Reserve, The Clearing House and others began talking up real-time payments several years ago, I was skeptical. It's not that I doubted the technological underpinnings. Well, OK, I was a bit skeptical that the Fed could make the necessary changes to its clearing apparatus fast enough to keep pace with market demand.
After all, it took the Fed nearly a decade to create and then get all financial institutions (FIs)—particularly small community banks and credit unions—to buy into an all-electronic ACH. (Prior to 1996, many FIs were hand-delivering ACH files to the Fed in the form of magnetic tapes and diskettes.)
But times have changed, and market forces are such that banks and credit unions that fail to join the march to real-time payments risk losing customers to nonbank financial technology challengers.
Westside Bank, a $143 million asset bank operating five branches in western Iowa, saw the writing on the wall. It's the latest bank to offer customers real-time payments using TCH's RTP network. Westside's connection to RTP means it now can offer consumers and businesses immediate availability of payments, 24/7/365, with instant clearing and settlement. Westside is accessing RTP through Shazam, a regional EFT network and core processor headquartered in Iowa. Bankers' Bank, headquartered in Madison, Wisc., is providing funding capabilities.
RTP is run by TCH, which for a long time has operated networks that clear and settle bank-to-bank payments (ACH, checks and wire transfers) in competition with Federal Reserve Banks. Owned by a consortium of large banks, TCH is the only organization to successfully compete with the Fed's payment services arm. Visa tried and failed to leverage its tech to offer a competitive ACH network in the mid-1980s.
The Fed is creating the framework to support real-time clearing and settlement of payments, called FedNow, which promises to support instant payments 24/7/365. FedNow is slated to be operational in 2023.
In the meantime, more than 130 banks and credit unions are using RTP, supported by numerous core processors and a handful of funding agents, which fund and manage client banks' positions on the network in support of settlement. RTP is regularly used to settle payments sent via Venmo and Zelle, among other transactions, said Steve Ledford, senior vice president of product strategy and development at TCH.
Westside is the third community bank to tap Shazam to support real-time payments. "Our core is certified [with RTP] so we can rapidly onboard core clients," explained Janet LaFrence, vice president at Shazam. One of those banks already is using RTP to offer faster funding of merchant card receivables. Historically, that money has moved into merchant accounts via the ACH, a process that can take up to three days to complete.
"RTP is being used to provide daily merchant payments," she said. RTP charges a flat rate of 4.5-cents per credit transfer (and no cost to receive), which is competitive with ACH network fees, Ledford said.
Shazam was a pioneer of PIN-debit POS payments and lays claim to being the only nationwide independent, member-owned EFT network, processor and core provider to community banks and credit unions. Shazam has developed an API that allows any financial institution using it for core processing services to link to RTP via Shazam.
LaFrence said Shazam plans to develop a similar API for its EFT processing clients. It's worth noting that Shazam is not the only core processor with a card-processing network to sign on with RTP. Both Fiserv and FIS are also part of RTP and can be expected to leverage those connections to enhance existing merchant acquiring services.
While the Fed lags TCH on real-time payments, it's not risking obsolescence. The United States is home to more than 10,000 banks and credit unions, and the Fed is required by law to provide all with payments clearing and settlement services. So come 2023, when FedNow goes live, every bank and credit union should have access to technology that gives consumer and business customers access to real-time payments. For real. 
Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. Follow her on Twitter @GS_PayMaven.
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