There is a lot of attention on Faster Payments these days, but there is also a lot of confusion. The United States is in a unique position where, come summer of 2023, there will be two real-time payments networks: The Clearing House (TCH), owned by the banks, and FedNow that the Fed will launch this summer. This competitive landscape highlights the endorsement of real-time payments and will drive innovation.
“Faster Payments,” which is a colloquial term meaning the instant or near transfer of funds, allow individuals and businesses to send and receive settled payments within seconds, 24/7/365, and use the funds almost instantly. Historically, it takes a day or more after initiating a cashless retail payment – either using a card or via bank transfer – until the funds reach the payee. The initiation and processing of transactions have typically been limited to specific times during the day as well. These limitations of traditional electronic payments are the main features that faster payments initiatives can change. These improvements provide end users with availability of funds on a nearly continuous basis. In other words, the network is live 24/7, the funds are available immediately, there is payment certainty, and it provides a new level of convenience for both consumers and businesses.
The use cases are vast and will impact all parts of the ecosystem. Faster Payments can provide businesses with competitive lower cost solutions and offer consumers better services. For merchants, faster payments offer ways to streamline payments to customers, consumers, and employees, as well as speeding up business-to-business transactions.
Business-to-Business (B2B) Payments will see faster access to capital when using Faster Payments. This means a business can bill a customer; and the customer can approve and send the payment back directly, thus eliminating the time to mail an invoice and wait for the payment to process, providing quick access to working capital for businesses of all sizes.
Business-to-Consumer (B2C) Payments will likely be an early offering and will provide value to consumers and businesses across the many areas of the industry. For example, issuing refunds quickly and efficiently for merchandise, travel (air, cruises, hotel, etc.), services, events, etc. will save processing costs and provide a better customer experience. Another example is in regard to the insurance industry. Insurance claims payouts today are typically done via a paper check and can take weeks, if not months. This is not ideal when you need to pay a medical bill or fix your car or home. Faster Payments can add similar value for employees and can provide competitive advantages. Today, it’s estimated that 60 percent of employees are living paycheck to paycheck. Providing instant payments offers the opportunity to be paid at the end of every workday or shift instead of waiting for a paycheck every two weeks or every month. Ultimately, cash flow issues can be alleviated with increased flexibility regarding payment processing.
Consumer-to-Business (C2B) Payments occur when consumers pay a business for their goods and/or services. Using Faster Payments, consumers would transfer funds at the POS or online directly from their bank accounts. Bill payments and subscription services could also be improved when paying your cell phone, electricity, software, entertainment apps, and water bills all instantly, rather than mailing a check or waiting days for ACH to clear. Wallet and prepaid top-ups are also prime opportunities for Faster Payments allowing for quick reloads of accounts.
This is just a sampling of the Faster Payments use cases we can expect as we see it evolve.
There is a lot of work to do as the merchant community moves forward, and we need your involvement as these networks are developed. In addition to the Faster Payments Community of Practice, we at the MAG are planning webinars and sessions at the Annual Conference in September. Please contact Chris Storbeck if you are interested in learning more about any of our engagement opportunities regarding Faster Payments.