The Case for Real-Time Payments Will Have To Be Compelling, An Expert Argues

As the U.S. payments system collectively ambles toward real-time payments, proponents will have to ensure its benefits outweigh those of existing expedited payments options. That’s one recommendation from the “Justifying Real-Time Payments in the United States” report released Tuesday by Maynard, Mass.-based Mercator Advisory Group Inc.

The report examines the potential business cases and objectives of the overall effort. The Federal Reserve is overseeing the development of various real-time payments services and is expected to soon issue a review of the efforts. Though developed under the guidance of the Fed, the real-time payments services will be privately managed, with multiple options likely available to financial institutions.

The business case for offering real-time payments must be substantial and clear, notes Sarah Grotta, Mercator’s director of its debit advisory service, who wrote the report. “Without a viable business case, building a full-feature solution that meets all of the Fed’s criteria will be difficult and making investments for ongoing improvements will be difficult to justify,” she writes.

Each participant in the system requires a business case. The technology companies building the platforms, for example, can charge fees, but that revenue will be dependent on the need of core processors, financial institutions, and other businesses to offer real-time payments, the report says.

Payment processors, such as ACI Worldwide Inc. and Fiserv Inc., will help financial institutions integrate real-time payments into their services. “Selling the integration and application tools for [real-time payment] capabilities is how processors will find their business case in the evolution to real-time payments,” the report says.

Financial-technology companies, entrepreneurs, and niche players will have a role in finding uses for real-time payments in markets that are not priorities for financial institutions.

Financial institutions themselves, however, have a less clear path to a business case, Grotta notes. “Finding a way to monetize the solution with their customers that is in line with expenses is not an easy task. Consider that most retail banks’ first foray into real-time payments is consumer person-to-person (P2P) payments, which doesn’t generate revenue.”

In the classic use case—emergency bill payment—the consumer may only want to pay to use real-time payments if the alternative, a financial penalty for late payment, outweighs the cost of the speedier transaction.

Yet another hurdle is existing expedited payments services, Grotta says. Same-day automated clearing house and wire-transfer services are easy enough for businesses to use. This will result in businesses maintaining both these existing services and real-time payments availability, she says.

The greatest business-case opportunities are in scenarios that require speed but also have other compelling reasons, such as around-the-clock availability and improved transaction data, the report says.