The paper, co-authored by PNC Bank and The Clearing House, pointed out that banks and other market participants in the US are starting to consider faster, or real-time, payments solutions, where previously, in this kind of innovation, the US has lagged behind the rest of the world.
It said: “To date, the US has been conspicuous in its absence from the list of countries embracing real-time payments. But this situation is changing fast, with a surge of activity and initiatives under way to bring payments in the U.S. up to speed with the rest of the world.”
According to the paper, the Federal Reserve (Fed) is encouraging private sector companies to innovate and develop solutions, in order to create a powerful business case for wider adoption. Introduction from the large, private sector institutions is intended to attract a wider level of adoption from other market participants.
Guidance from the Fed also expands the scope of faster payments to include the entire end-to-end payments process, including payment notification, reconciliation and inter-bank settlement, the paper said.
The innovation has seen interest from various sectors of the industry, including existing payment solution providers, banks, card operators and technology start-ups.
The paper said: “This diversity of participants and initiatives may create some challenges with coordination among some market observers, but it doesn’t have to.”
“The common goal is to offer end-to-end solutions where the customer undertaking a transaction will receive a message back within five to ten seconds confirming that the payment has been made and the money is with the recipient.”
It went on: “Achieving [this goal] will inevitably involve collaboration between a number of different parties, handling different parts of the value chain and/or offering solutions that meet particular needs.”
Diversity of the interested parties means that faster payments could be applied to several use cases. The paper listed business-to-business, person-to-person, consumer-to-consumer, business-to-consumer, and government-to-consumer or consumer-to-government payments as possible applications, but stressed that it is important to choose the correct tools for the particular use case.
The paper concluded that faster payments will be a reality in the US. Institutions should be identifying the use cases that apply to them, and working to create products to meet those needs.
They should also be starting to plan their technology builds, and identifying the third-party technology partners they want to partner with, according to the paper.
It said: “While the Federal Reserve’s market-led approach means banks have a choice of whether or not to join the revolution, those that decide not to do so will risk losing payments revenues, customers and a competitive edge.”