Citizens Bank will launch real-time payments for commercial accounts in 2019
Citizens Bank plans to phase in real-time payments for its commercial banking business starting in 2019. The bank, which is an owner bank of The Clearing House (TCH) has been a backer of real-time payments for three to four years, said Matt Richardson, head of product solutions in treasury management at the bank.
Bank executives thought the U.S. needed a better payments system, he said.
“This is following the global trend to get to faster payments; that trend is moving throughout the world and we felt the U.S. had to get up to speed in terms of faster payments,” he explained. “We still have wire and ACH, but neither is really fit for purpose in a digital economy where the consumer expectation is that things happen immediately. It’s hard to support that with legacy platforms.”
The bank will launch with the ability to receive real-time payments and then follow up later in the year with the capability to send by file transmission, API or via a commercial online banking platform.
Real-time is definitely not just for the TCH owner banks, he added. “The only way for a payment system to really take hold is for it to be ubiquitous.”
One of the attractions for real-time payments will be that companies like utilities can do requests for payment. That requires ubiquity.
“A utility needs to be confident that all five million clients can accept the request for payment regardless of where they bank. TCH has done a ton of work in that regard, reaching out to smaller banks and their trade associations and working with processors like FIS, Fiserv and Jack Henry. The hope is that the processors will make it available to the banks they process for.”
In October The Federal Reserve Board “invited public comment on actions the Federal Reserve could take to support faster payments in the United States. The potential actions, which would facilitate real-time interbank settlement of faster payments, build on collaborative work with the payment industry through the Federal Reserve System’s Strategies for Improving the U.S. Payment System (SIPS) initiative.” Comments are due by December 14, 2018.
Peter Gordon, co-founder of Payment Relationship Management and an active participant in the Fed’s Faster Payments conferences, said that the current Fed Chair Jerome (Jay) Powell has been active in faster payments. A lawyer and investment banker, including an eight-year stint as a partner at the Carlyle Group, his background differs from the usual suspects at the Fed who are largely economists, said Gordon.
“He’s a business person who understands the need to drive down costs at businesses of all sizes. Now he is looking at growth and productivity tools, and electronic payments could be another tool the Fed uses to improve productivity and support GDP growth in this digital era.”
Big banks in the U.S. for years showed little enthusiasm for faster payments because there was no obvious business case for them. It’s an expensive proposition with no apparent ROI. The Fed has patiently educated, prodded and encouraged banks to plan for real-time payments. After one of the Chicago Fed’s two-day programs on real-time, one banker, displaying a significant lack of urgency, said it would be interesting to see what would be discussed at next year’s session. (That may be the reason the Federal Reserve Board included the year in its deadline for a request for comment, just to ensure banks didn’t think the deadline was 2020 or beyond.)
The Fed has basically asked if it should become an operator of the system, said Richardson, who is wary of this direction.
“I think the Fed has done good work. They set an objective, set some standards that a faster payment system would have to meet, and they created a dialogue around it. That part is good. But there is definitely some concern that if the Fed does decide to become an operator, or if they suggest they might become an operator of a competing scheme, it could fragment the market and make it hard to get to faster payments.”
Somewhere between 20 and 30 countries around the world have, or are building, real-time payment systems; the UK is celebrating the 10th anniversary of its faster payments.
“ The U.S. is the only jurisdiction that is trying to launch a new payment platform without a government mandate,” said Richardson. “Everywhere else has been government sponsored or mandated. That is not the case here, at least not so far.”
Corporations are interested in real-time payments, he added and have told TCH to hurry up and build it so they could take advantage of it.
“People will ask why a corporation would want to pay faster? From a cash flow perspective the idea is not to get the money out of a corporate account and to payee faster, not to hurt their working capital, but to give them certainty. With real-time you will know almost the second that the payment has settled.” Richardson said.
“The other huge thing for corporations is what it means for collections, being able to leverage request for payment to re-engineer how they collect from customers. That could be very, very powerful. Corporations want to manage risk and have cost effectiveness, but they also really wanted operational efficiency. The ideal system is being built where payment information accompanies the payment. What could that mean for corporations in an era when lock boxes are still prevalent? It’s a huge opportunity for corporations.”
That probably will require corporations to upgrade, or take the next release, of their ERP systems, he added. The good news is that major ERP vendors have already worked with faster payments in other countries, so they are prepared.
Richardson said that Citizens’ chairman and CEO, Bruce Van Saun, took a long view of moving to real-time.
“The payment landscape was changing and we can either be a part of it or not. We weren’t going to bury our head in the sand to preserve the status quo. I do think real-time payments is a legit value-added improvement over the payment systems we have today, and I do think we will be able to monetize that, especially if we can help our customers re-engineer their collection process.”
Citizens has partnered with Fiserv, which had acquired Dovetail, a payment hub company, to develop real-time capabilities. He won’t be surprised if he is surprised along the rollout.
“You can whiteboard it all you want and have brain-storming sessions, but you don’t necessarily know how the corporations are going to use it and what use cases are going to take off. It would surprise me a little if there is a use case no one has thought of, but which will be popular and take off, that could be surprising,”