NACHA’s Payments 2019 brought together hundreds of finance professionals to discuss today’s most pressing payment topics. While APIs, same-day ACH and data monetization were key topics, the biggest focus was on real-time payments. Below are some key takeaways on each topic, with a deeper dive into real-time payments.
Globally, the use of application programming interfaces (APIs) in banking continues to rise, especially with the increasing adoption of open banking. In fact, one pundit at Payments 2019 described APIs as “the EDI of the modern age.” Bank experts anticipate APIs will become the standard way for sharing information and already APIs are making it easier for banks to write new code and develop new capabilities.
One of the challenges for U.S. banks is the lack of a mandate for open banking, which leverages APIs heavily. As a result, there has been less progress on the API front in the U.S. While larger U.S. banks are developing APIs and have their own API stores, there is more work required before U.S. banks fully realize the potential of APIs and catch up with their counterparts in Europe and other regions where open banking is mandated.
Same-day ACH in the U.S. enables the processing of ACH payments on the same calendar day as the transaction, so long as an ACH operator receives the transactions by 2:45 p.m., ET. This functionality provides banks with a cost-effective alternative to real-time processing. NACHA has approved a rule that will extend this settlement window to 4:45 p.m., ET, pending Federal Reserve approval, and over a half-dozen sessions were devoted to the topic to help participating banks understand how best to leverage this functionality.
I had the privilege of leading a session on monetizing payments data at Payments 2019, focusing on what banks can do to get more out of their data. As Ganesh Krishnan, CIO of Corporate and Institutional Banking at PNC, noted at the event, “data is king” in today’s world. Payments data enables banks to drive new product ideas, new sales approaches, increased sales, and more efficient payment operations. It also helps to keep bank customers happy by having access to offers tailored to meet their unique needs at any given moment and by making it easier to accept those offers.
By far, the biggest topic at Payments 2019 was real-time payments (RTP). Globally, real-time schemes are transforming the payments market. Within the U.S., 15 of the 25 banks that own The Clearing House (TCH), which operates the U.S. RTP® network, have gone live with their own real-time initiatives.
The good news is that these banks handle approximately half of all U.S. bank deposits. The bad news is that the ongoing uncertainty surrounding RTP in the U.S. has slowed the real-time efforts of the 10,000+ banks that are not TCH owners. The uncertainty is due to the Federal Reserve’s indication that it may choose to operate a real-time gross settlement system (RTGS) system that would compete with RTP. The agency has held off on announcing its direction until sometime before end of year.
The agency’s slow movement, combined with a warning from TCH that RTP pricing may change if the Federal Reserve enters the market, is leading many banks to sit tight, impeding RTP adoption.
It took the UK’s Faster Payments initiative 10 years to get to where it wanted to be, so it is reasonable to assume the U.S. might follow a similar timeframe, especially in light of the country’s lack of a real-time mandate. However, the government and banks need to address the lack of certainty, especially in terms of pricing, providers, infrastructure and interoperability.
CGI is working on the forefront of RTP both in the U.S. and across the globe. If you would like to discuss the above trends further or your own organization’s RTP opportunities and challenges, feel free to contact me.