Innovation

Is the Shift Toward Real-Time Payments Inevitable?

By: Lou Grilli, Senior Innovation Strategist, PSCU

Real-time payments (RTP), the first new payment format in 40 years, is gaining considerable industry traction, despite being in operation just a little over two years. While RTP technology is still relatively new and the volume of payments on the RTP network still pales in comparison to Automated Clearing House (ACH) and credit and debit cards, we can’t ignore that it is the fastest growing segment in the payments space. Some prognosticators predict that moving money in real time will be the expectation, not the exception.

The theme of inevitability is frequently used in RTP discussions. Consider these recent statements:

  • Financial institution attorneys group SW&M states, “Consumers and businesses demanding faster payments is leading to […] the inevitable industry-wide adoption” of real-time payments.
  • According to a PaymentsSource article, “Financial institutions must start making significant changes to prepare for the inevitable shift the banking industry is making towards real-time payments. If not, they will find themselves unprepared and could lose ground to other banks and technology providers that move faster to seize the opportunity of early market leadership.”
  • A PaymentsJournal article says, “Due to the demand of faster and better payment methods, the adoption of faster payments is inevitable, meaning that it’s no longer a question of if adoption will occur, but when.“
  • An Accenture research document reports there is “an inevitable mass-migration towards immediate payments that proceeds at different speed and with different use cases in each market, but which invariably impacts existing payment methods.”

While some of these statements may lean toward hyperbole, RTP is poised to become the alternative to ACH – much like how ACH in 1972 became the de facto alternative to writing and sending checks. Currently there is one real-time payment operator, The Clearing House, connected to just over half of all the demand deposit accounts (DDA) in the U.S. The Fed recently announced its entry into the RTP market with its FedNow Service, which is widely expected to help connect to most of the remaining DDA accounts.

How Can Credit Unions Prepare for the Rapid Adoption of RTP?

Credit unions should closely follow RTP developments, and understand the tradeoffs of getting involved early versus taking a wait-and-see approach. PSCU and Javelin Strategy & Research, a research-based advisory firm, have collaborated to bring to credit unions an informative and educational white paper and webinar on faster payments. The white paper, Fast Access, Fast Payments: Aligning Member Expectations with Payment Infrastructure, provides insight on the technology, operational structure and member experiences that will need to be implemented to compete and thrive in this new marketplace. You can download the white paper and watch the webinar at pscu.com/fast-access-fast-payments.

Whether you believe it’s just a matter of time before RTP becomes a required banking capability to remain competitive, or that offering RTP to your members is truly in their best interest, now is the best time to start discussing and planning for your future of payments.

Lou Grilli is a senior innovation strategist at PSCU, tasked with building and shaping a superior payment and member experience capability for PSCU and its Owner credit unions. Grilli’s long career in payments includes product management, product development and thought leadership in credit, debit, loyalty, mobile payments and digital wallets. He has spent the last six years in roles dedicated to the credit union industry.