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Real-Time Payments—What Credit Unions and Consumers Need To Know

by Pamela Michaels Fay

With real-time payments (RTPs), users can initiate, clear, and settle any transactions in seconds, any time— day or night. RTPs are a boon for banks, credit unions, and the consumers they serve. They offer an immediate and frictionless customer experience, reduce the potential for fraud, provide opportunities to explore new products and services, and more. But they also require credit unions to rethink their back-end operations. Here’s what you need to know.

What Are Real-Time Payments?

Real-time payments have existed for nearly 50 years. Japan had the first system in the 1970s. Other countries, including the United Kingdom and India, followed. Today, some 56 countries have real-time payment systems.

The U.S. was a little slow on the uptake, introducing the first real-time payment system in 2017, the Clearing House’s RTP network. It remains the only one that’s been fully implemented. Although the Federal Reserve’s FedNow is currently in pilot and should be ready for launch in 2023. RTPs are as close as possible to real-time, 24/7/365, always-available payment capability. 

There are same-day faster payments, and then there are real-time payments. They are not the same. Speedier payment systems post and settle payments quickly. The RTP network is a separate and new infrastructure built for the digital age. RTP network payments clear and settle individually in real-time with immediate finality.

Same-day ACH payments are cleared in batches and finally settled after the payments clear. An essential part of RTPs is that they are irreversible. When Nacha decided to respond to the demand to expedite the ACH process in 2015, it was an improvement, but it still was not the current RTP system.

What Does RTP Mean for the Back End? 

Any federally insured depository institution can participate in the RTP network with the right back end. This requires the bank or credit union’s back-end system to always be available for a transfer. It’s an open-loop system. Payments connect directly to a personal or business account where the funds are ready and waiting. Further, the bank or credit union must have the data-rich and structured messaging format provided by ISO 20022. SWIFT and other legacy formats like it will supply the data records needed along the payments chain. 

All banks can support real-time payments, either with the right systems on the back end or through a third-party solution provider. It’s a cost-effective way to participate in this digital revolution without breaking the bank or taxing already-strained IT resources at even the largest bank or credit union. 

What Is the Benefit for Credit Unions and Their Customers?

As financial institutions develop enhanced products and services to meet the needs of their customers, it’s essential to understand their end-user’s pain points. Digital technologies provide the platform to both promise and deliver real-time capabilities. For many customers, access to RTPs can make the difference between a good and a great experience. 

As any banker knows, cash-management issues are a massive problem for many small businesses. There is no better way for these businesses to have greater control and visibility into their accounts. And it’s not just businesses that need fast access to their money — consumers also want immediate gratification.  

What’s suitable for customers can be really good for banks and credit unions. Today’s savvy banking customers expect that their financial institution will generally offer the same level of service and range of digital capabilities as its competitors.

Many alternatives exist if you can’t provide the type of service they expect. In addition to real-time capabilities, customers demand lower fees and greater transparency. That sign-on incentive? It’s long forgotten when you can’t offer them the anytime or place convenience they can find online.

In 2021, JPMorgan Chase launched a new service called “request for payment.” This service allows corporate clients to send payment requests to customers using the bank’s app or website. The benefits? For the largest U.S. bank, it significantly reduces the time it takes to get paid. The strategy is to provide a wider variety of payment types, giving customers greater flexibility and more options. In the long term, this will allow JPMorgan Chase to capture an even larger share of the growing number of digital payments. 

How RTPs Improve Operations

Since RTPs are irrevocable, companies reduce their operational risks as well. Plus, they can minimize their reliance on back-office activities such as accounts receivable and accounts payable, which reduces overall costs. Further, RTP transactions offer instant data. This data can help companies make better, faster decisions to respond to customer needs and personalize recommendations. 

As digital banking evolves and the global market expands, new opportunities exist. Nontraditional financial services have mainly arisen because existing products and services need to serve the needs of many of these new consumers and businesses. There’s a tremendous revenue opportunity for the banks and credit unions to pay attention.

How Are Real-Time Payments Most Commonly Used?

Real-time payments are emerging as the new standard. According to Citizens Commercial Banking’s annual Real-Time Payments Outlook, some 90% of business leaders surveyed report that they are interested in RTPs. Digital payments have been proven reliable, hence the interest in investing more in digital payment technologies during the pandemic. In fact, access to RTPs is the second highest-ranking criterion for choosing a banking partner, according to those surveyed, right behind the ability to provide life-cycle banking solutions.

Here’s how respondents say they will use RTPs:

  • 52% to manage cash flow
  • 46% to conduct general accounts-payable activities
  • 43% to fund payroll
  • 42% to facilitate payment requiring immediate receipt
  • 40% to improve collection activity
  • 38% to replace check payments

Real-Time is Real Change

Real-time payments are a game-changer. They will change how banks and credit unions support their customers, allowing them to provide better, more convenient services. Those financial institutions that get in sooner rather than later will be better positioned to compete in the digital economy.

Want more information on how your bank or credit union can leverage the latest technology to support your digitization efforts? Contact Lumin Digital for a demonstration. 


Payments Journal – Real-time Payments: Everything You Need to Know

Nacha – Same Day ACH: Moving Payments Faster (Phase 1) 

Reuters – JPMorgan Chase Launches New Real-time Payment Service

Business Wire – Real-time Payments Gaining Traction Among Businesses