The New Reality of U.S. Payments

Carl Slabicki, Head of Strategic Payment Solutions, BNY Mellon Treasury Services

The U.S. payments space has experienced rapid evolution over the past few years. The era of competing primarily on price and service has been replaced with one where banks can also differentiate themselves as providers of innovative payment solutions. This shift has been driven by a series of new developments to existing payment rails, combined with the advent of new, real-time solutions and overlay services. Those that have been able to quickly adapt to the new landscape are now well placed to gain a significant market advantage. But amid all this change, what tangible benefits are available to banks and their customers today?

Reaping the benefits of instant payments
One of the biggest developments has been the launch of instant payment capabilities. In 2017, The Clearing House launched RTP®– the U.S. real-time payments network – to provide real-time gross settlement on a 24/7/365 operating model. Through RTP, payments can be safely and securely settled within two to three seconds – a vast improvement to speed and efficiency compared with the multiple days taken with legacy rails. For individuals or businesses needing to make urgent payments, or that need the funds immediately, instant payments are proving to be a game changer. Already, a number of innovative use cases have emerged, with benefits ranging from improved liquidity management to enhanced client experience.

Taking instant payments to the next level
The RTP network also unlocks a number of value-add features for banks and clients alike. The most immediate – and most exciting – of these features is the request for payment messaging capabilities. In 2018, BNY Mellon became the first bank to enable this functionality, which supports complex digital commerce services with integrated messaging that allows the issuing and paying of e-invoices and e-bills. Then, in May 2021, once market readiness expanded, BNY Mellon became the first bank to launch a live-production electronic bill (e-bill) solution, enabling our biller clients to present digital bills to their consumer clients in real-time and to receive an instant payment via the consumer’s preferred online and mobile banking channels.

So why exactly is the solution so innovative? In an increasingly real-time world, U.S. consumers expect digital, transparent and immediate experiences when receiving or sending money – especially when it comes to bill payments. Current solutions for billers fall short of this expectation; the production and sending of bills is expensive, reconciliation can be inefficient, costly and cumbersome and the cash reserves needed to operate in the fragmented bill market are high.

Picture the scene: A U.S. corporation wants to present a bill to its customer to collect payment for its services. Historically, this bill would have to be sent via U.S. mail and paid via a check – an inefficient and antiquated process that delays settlement for both parties. By leveraging request for payment capabilities – as enabled by BNY Mellon – the company can send a bill electronically over the RTP network. Once the e-bill is sent, the customer’s bank will then reach out to the customer via an email or push notification to inform them that the company has sent the bill. The customer is then directed to log on to their account to either approve or reject the bill payment. If the customer chooses to approve the payment, the requested funds will arrive in the billers account in as little as three seconds – providing the company with a payment that is both irrevocable and transparent. Once the payment has been completed, a message is also sent to the biller and their system is instantly updated – providing a seamless end-to-end experience from bill-presentment to reconciliation.

Since launching this solution, BNY Mellon has been actively collaborating with multiple billers and retail banks to drive the adoption of this new functionality. In September 2021, these efforts came to fruition – with BNY Mellon announcing that Verizon had become the first company to send e-bills over RTP to its consumers that bank with Citibank. When using BNY Mellon’s new Real-Time E-Bills and Payments functionality, Verizon customers with Citibank accounts can pay their bills immediately, at any time of day, 365 days a year, and enjoy greater control over their finances.

The future of payments
The RTP network aims to have 40% of consumer accounts digitally enabled with this e-bill presentment capability by the end of 2021 – the point at which The Clearing House believes it will reach the “critical mass” mark.
[1] Soon, however, RTP will no longer be the only 24/7, instant payment service on the block in the U.S. – with the launch of the Federal Reserve’s FedNowSM Service currently expected in 2023.

As a leading bank in the real-time payments space, BNY Mellon is also at the forefront of developments surrounding the FedNow service. By working with both networks, the bank is positioned to deliver a suite of solutions to clients, and further support the growth, reach and adoption of instant payments services across the U.S., while solving for interoperability concerns between the two payment rails.

Elsewhere, Zelle®, with the support of some of its member banks, including BNY Mellon, is working with The Clearing House to develop a secure and easy way to leverage an individual’s cell phone number or email address to deliver an e-bill through their banking network – as opposed to having to collect, store and process their routing and account number.

As these, and other innovative new services, continue to evolve, it is becoming more important than ever for banks to incorporate a variety of payment solutions into their offerings to ensure they – and their clients – are ready for the new, real-time world.

The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.

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