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TCH RTP: 2020 challenge


Now that The Clearing House’s new real-time payment (RTP) platform is live in the US, TCH’s SVP Steve Ledford, a member of InstaPay’s Advisory Board, discusses the goal to reach ubiquity by 2020 and the other two project aims of utility and security. 

Three years after The Clearing House (TCH) announced its real-time payments (RTP) initiative in 2014, the US has joined the global faster payments club, alongside the likes of Singapore, the UK, and so on.

The US TCH RTP is the first completely new payment system in the US in more than 40 years. It was successfully launched on 13 November 2017 with six  banks – BNY Mellon; US Bank; PNC; JPM Chase; Citi and SunTrust – sending and receiving instant payments securely with immediate settlement. They are now doing this every day and many more financial institutions (FIs) are joining the network in the coming months.

November’s launch was not, however, a finish line moment. Rather, it was the starting line for a much more ambitious journey. TCH is committed to fulfilling the US Faster Payments Task Force goal of reaching every FI in the US by 2020.

That means finding a way to link more than 11,000 banks and credit unions to RTP directly or through partnerships. Furthermore, TCH is committed to making payments not only faster, but safer and more innovative with useful functionality and utility.

The past three years were devoted to bringing the RTP platform to market. The next three years will focus on actually using RTP to improve the entire US payments ecosystem.

RTP is designed to meet the demanding requirements of a market-driven solution for a large, diverse community of financial institutions (both banks and non-banks), businesses and consumers.  From the beginning it was clear that the US government would not mandate FIs to offer faster payments; it would be left to the private sector.

Banks and credit unions have responded with good business reasons to implement a new payment system. In doing so, TCH understood a real-time payment system must be more than just fast in order to compete in a crowded environment for payment services. Similarly, the US Faster Payments Task Force – comprising of more than 300 individuals, representing FIs, consumers, businesses, networks, regulators and others in the US payments community – defined 36 criteria for faster payments, only five of which deal with speed.

The project goals for TCH’s RTP have driven the system design and go-to-market strategy. Our three key aims are:

  1. Safety and Security: RTP must be inherently safer and more secure than legacy retail payment systems.
  2. Ubiquity: TCH must have a credible plan to reach every FI.
  3. Utility: RTP must support products and payment services that provide value beyond moving money. RTP must also have the flexibility to support future use cases and data delivery models, not just those that exist today.

Safety and security first
The safety and security of RTP is based on the following principles. Firstly, credit push: This means that every payment starts when a customer instructs its FI to send a payment. There are no debits. This simplifies the authorization process because the only parties involved are the senders and their bank or credit union.

Risk-based information security, customer due diligence and anti-fraud requirements are also crucial. As the inherent risk of an activity rises, so do the information security and anti-fraud requirements that accompany it.  For example, the requirements for a sending FI are higher than for an institution that only receives payments. Similarly, a bank that allows customers to send ‘Request for Payment’ transactions (for bill or invoice delivery) must meet higher standards for customer due diligence (CDD) and unusual activity monitoring.

Ubiquity by 2020
The ubiquity strategy for RTP is based on rapidly establishing critical mass, while supporting multiple access models for more than 11,000 FIs of all sizes, including small credit unions.

The major banks that comprise TCH are committed to implementing RTP on an accelerated schedule to give a good initial uplift. This will make RTP-based payment services viable, even before the network achieves full scale ubiquity. At the same time, TCH is working with payment technology providers and third-party processors who are offering a full spectrum of access models. TCH’s approach is to partner with processors and networks that can reach thousands of banks and credit unions quickly and effectively, enabling uptake.

An important element of the access model is a pre-funded immediate settlement process that eliminates the prospect of settlement failure and counter-party risk. Another characteristic is that the functionality and user experience of RTP is not affected by the participating financial institution’s access model.

Those that connect to the network through a third-party service provider are still considered full participants in the network. They are expected to meet the same service levels as those connected directly to the switch. Likewise, the terms for access are the same for all participants; no volume discounts, no preferred pricing.

Participation in RTP is voluntary for FIs. To encourage adoption RTP includes capabilities that extend beyond moving money. These features are expected to be the basis for compelling financial products and services.

An example is the ‘Request for Payment’ message. It is not a debit, but is instead a message that can deliver a bill or invoice. The receiver can choose whether or not to pay, and whether or not to pay using RTP. If they do pay using our platform, however, the biller can expect to receive remittance data exactly as they have specified, and the bill payer can expect immediate confirmation of successful payment. Another example is support for multiple data delivery models within the ISO 20022 messaging set.

These capabilities are not specific to any use case. A ‘Request for Payment’ message can deliver a consumer bill, a commercial invoice or a plea for money from a relative. RTP is purposefully not designed around specific use cases. This supports broad utility in the near-term. It should also help ‘future proof’ the system, providing a platform for innovative uses not yet contemplated today.

This last point is crucial. RTP provides a core platform for messaging, clearing and settlement. It does not provide end user products. Products to support bill payment; person-to-person (P2P) transfers; commercial accounts payable & receivable (A/P & A/R); or payroll services will be offered by FIs and other service providers, based on customer demand and the underlying capabilities of RTP.

Conclusion: The Road Ahead
There is much work ahead to make RTP the robust national payment system it was designed to be. TCH and its partners must make a compelling case to thousands of banks and credit unions to connect with and support the use of our platform. The on-boarding process must be capable of handling hundreds of new participants at a time as the rollout continues in 2018.

After FIs are linked to the network, the focus shifts to creating products that will generate transactions. In some cases this will result in entirely new products, but there is scope for integrating RTP into existing services. TCH is working with providers of P2P, and business-to-business (B2B) and other bill pay services to incorporate RTP messages, clearing and settlement as a way to improve their products.

Our platform has the potential to revolutionize the way payments are made in the US.  We at TCH are working hard to get the industry to understand the endless possibilities offered by RTP.  Once the word gets out we are confident it will drive adoption and individual and corporate customers will soon realize its benefits.



Author: Neil Ainger