Many expect faster, more secure, simpler payments to transform commerce, a new Citizens Bank survey finds.
Electronic funds transfer and related services such as PayPal and Venmo have become everyday business and consumer staples. Now, the banking sector is readying the backbone needed to facilitate instantaneous electronic funds transfer (EFT) between parties with no latency.
The timing appears right. Many businesses are anxious for their banks to start supporting real-time payments. A majority of commercial enterprises are on board with real-time payments that could reduce transaction times to virtually zero. And most anticipate improvements to their own financial processes as a result.
Those are among key findings of a recent executive study from Citizens Commercial Banking showing widespread belief that shifting to real-time payments will transform commerce. Beyond speed, many business leaders say they believe real-time payments will help eliminate steps from billing and payment procedures, provide clearer communication between buyers and sellers, and increase security, the bank reports.
In fact, the Citizens’ study sees real-time as “the most sweeping change to the US payment system” since the formation of the Automated Clearing House (ACH) in 1974. Ninety percent of executives surveyed expect to adopt real-time payments as they are made available. Nearly two-thirds say real-time payments will likely mean the end of cash and check payments, and usher in an era of instant transactions.
This will be an extensive change for many enterprises. The survey found more than 75 percent of businesses still make or accept payments using paper checks; more than 45 percent still make or accept some payments in cash. It usually takes a day or more for checks to clear and money to move from one account to another.
In contrast, payments can be made electronically by a customer through the real-time payments network and the funds instantaneously move from one account to another. Information about the transaction also travels with the funds, so recipients know where the money is coming from and why.
Momentum, Despite Fraud Concerns
Of course, real-time payments bring the potential for real-time fraud and abuse. “Faced with a growing number of transactions to process in real time, payment service providers, financial institutions and FinTech firms also need to make sure the security of these smarter payment systems is up to par,” cautions a report in PYMNTS. While most of these threats are familiar to financial institutions, which have been battling electronic fraud for decades, “today’s challenge is squeezing that protection down into a 20-second time frame.”
Nevertheless, the Citizens survey shows that the real-time payments network is gaining momentum, with 41 percent of businesses saying they are currently discussing it with their banks or implementing it. In addition to replacing check and cash payments, 60 percent of businesses said the new network would improve collection activity and posting to clients’ accounts. Fifty-nine percent of businesses said real-time payments would help them manage cash flow more effectively.
Eighty-two percent of businesses said real-time payments solves for many of the problems with the current payment options, such as the gap in time between making or receiving payment and when the funds clear. They also noted the real-time payments network’s ability to reduce fraud, include payment data with the payment and automate payments more easily.
Faster Cash in Three Areas
Real-time payments can speed up business cash flow on three fronts, the report explains:
Request for Payment (RFP): “A vendor can send an RFP that includes invoice information or an eBill with details to help a client reconcile a bill or purchase order. The data will be returned with the real-time payment, enabling automatic posting of payments, immediate reconcilement
of incoming payments against the sender’s accounts receivable, reduction or elimination of much back-office work and potential reduction of payment disputes.”
Request for Information (RFI): “Customers or other recipients of real-time payments can address questions or disputes by sending an RFI (along with the transaction identification code), which connects the information to the eventual payment.”
Enhanced messaging capabilities: “A payment sender may add free-form text and embed links to documents when sending real-time payments. Using separate remittance messages, they can also report shipment shortages, damages or other issues. Rel-time payments keeps related order information together and accessible to both the sender and receiver.”
The Federal Reserve’s Faster Payments Task Force has set an ambitious timetable: any company, organization or consumer with a U.S. bank account should be able to use real-time payments by 2020. The Citizens survey suggests that customers will be very willing if payment processors are able.