When The Clearing House (TCH) unveiled the Real-time payments rail, delivered through the RTP® network, several small-to-large banks quickly adopted the solution. But the pace of business was less enthusiastic; that is, until the global pandemic caused a major disruption in payments processes and consumer behavior showed a tremendous inclination to the faster, contactless digital solutions offered by tech-forward service providers. Since then, the dialogue in the U.S. payments ecosystem has irreversibly shifted toward offering faster speed, more choices and simpler ways of sending and receiving payments.
At its heart, real-time payments is a means to provide faster, more reliable and safer payments by nearly eradicating the exposure associated with paper-based payments or traditional wires. You aren’t restricted by processing times, since RTP transactions occur instantaneously, 24/7. However, the key RTP differentiator is that it enables organizations to communicate the context of the payment through the introduction of innovative messages such as request for information and request for payment.
In a business-to-business request for payment transaction, the RTP workflow processes payments through the following steps:
1. The supplier sends a request for payment to its bank
2. The supplier’s bank validates and routes the request for payment to the buyer’s bank over the RTP network
3. The buyer sends the payment to its bank
4. The RTP network validates the buyer’s payment, and updates the multilateral-net settlement (MNSP)
5. The RTP network sends the payment to the supplier’s bank, who then pays the supplier, who then credits the supplier’s account. The supplier provides ordered goods to the buyer.
6. Confirmation of the payment is provided back to the buyer’s bank.
The graphic below from TCH provides a visual representation of the RTP process:
This exchange of information takes literally seconds to complete, rather than the customary one to two days from a standard ACH transaction. From a settlement standpoint, that can save suppliers and buyers time and expense from more traditional payment methods.
In the first year following its debut, RTP provided a direct response to traditional, multi-day payment processing. The potential of RTP, while still to be fully determined, lies with its broad applicability and enhanced capabilities.
Here are some of the major benefits noted by early adopters of RTP:
The RTP network provides an exciting path forward for treasury managers.
The RTP network is still fairly new, independent from other long-existing networks like ACH.
U.S. Bank was one of the first banks live on the RTP network and took part in the first-ever payment on the RTP network. In 2019, U.S. Bank opened all routing numbers to receive and send Real-time payments and message capabilities. Business customers can send and receive messages via the RTP network, while consumers can receive RTP credits.
Piloting organizations have noted that, while RTP doesn’t necessarily replace the need for other digital platforms like ACH, or credit and debit cards, it will likely cause a dramatic reduction in paper check payments.
Analysts have long predicted the demise of paper checks, yet checks are still being widely used – especially in B2B settings with vendors who cannot accept digital payment methods and payers who cannot send remittance detail electronically. To successfully reduce the volume of checks used for these transactions, and deliver the experience that customers expect from modern businesses, RTP can be a great option.
As always, though, RTP is just one part of a comprehensive payment strategy. If you need help building that strategy, we have the resources to get you started.
The payments landscape is being disrupted every day. Contact U.S. Bank for more information.