Innovation begets further innovation.
And the emergence and adoption of real-time payment rails represent a significant advancement in the U.S. payment infrastructure, transforming the way financial transactions occur and benefiting both financial institutions and end users.
With speed, security, and 24/7 availability, the potential for future payment innovations is endless.
That’s why PYMNTS sat down with Lee Alexander, executive vice president and CIO at The Clearing House (TCH), to discuss TCH’s extended partnership with Mastercard on real-time payments, announced Wednesday (Jan. 24), as well as hear how both companies plan to integrate new instant payment use cases across a range of payment flows.
“Beyond extending our partnership with Mastercard, we intend to partner on innovating for the banks that use the network by looking for additional use cases that they’ve expressed interest in and that would help drive volume across RTP, while at the same time benefiting the banks and their end customers,” Alexander said.
TCH’s RTP® network is available to all financial institutions, and the payments rail counts 487 banks and credit unions across its platform — 80% of which are smaller financial institutions with under $10 billion in assets.
“We’re up to 74 million transactions and $39 billion” in Q4 2023 volume alone, Alexander noted.
The collaboration with Mastercard aims to meet the evolving needs of banks and their customers by focusing on both new and existing use cases that offer frictionless, high-speed payments.
TCH’s real-time payments provide a mechanism for immediate interbank transactions. Unlike traditional payment systems that involve delays, real-time payments enable near-instantaneous transfers, enhancing the speed and efficiency of money movement. The immediate settlement reduces the risk associated with delayed transactions.
Increasingly, financial institutions adopting TCH’s RTP can gain a competitive edge by offering cutting-edge services.
And within RTP’s frictionless high-speed environment, Alexander highlighted four key use cases where banks and financial players have expressed a desire to focus on.
The first is frictionless account transfers, allowing customers to easily move money between different accounts, such as from a bank account to a brokerage account, in a quick and seamless manner.
The second opportunity is around earned wage access, with the gig economy accelerating the demand from workers to receive their wages immediately after completing a shift.
The third is instant person-to-person (P2P) payments — and Alexander noted that instant means truly instant, not just in-name only.
The fourth area where RTP can drive differentiation and provide true value is across business-to-consumer (B2C) payments by allowing banks to bill their clients and make instant payments for services such as insurance payouts and loans, as well as enabling businesses to pay consumers instantly.
“Obviously, the ways these materialize for the banks’ customers is different … but we’ve spent a long time asking the banks what would be most valuable to their user population, and these are the primary use cases,” Alexander said.
As technology continues to evolve, the landscape of real-time payments is likely to witness further innovations and improvements, shaping the future of financial transactions.
“The utility for this payment rail goes far beyond the areas that I mentioned,” Alexander said.
To encourage broader adoption of instant payments, the partnership between TCH and Mastercard focuses on specific sectors and industries that can benefit from real-time payments, he explained, with an ultimate goal of creating a blanket adoption across both consumer and business applications, catering to the diverse needs of all users.
“Using the RTP rail is going to allow financial institutions to innovate and allow the banks themselves to accommodate that innovation in a much better and a more scalable way. That’s the future,” Alexander said. “It’s about building capabilities to support new and emerging areas of interest for financial institutions.”
The partnership benefits from the architectural innovations and lessons from deployments across the RTP network, ensuring fast, reliable and secure transactions.
Additionally, real-time payments create a more data-rich environment, offering valuable insights for banks. As RTP becomes more popular, Alexander explained, the combination of data from various payment rails will allow banks to gain a comprehensive view of their entire payments ecosystem. This data-driven approach can drive digital transformation and enable banks to provide enhanced services to their customers.
The partnership’s focus on scalability, security and mutual benefits paves the way for future advancements in the payments industry, while also promoting financial inclusion and digital transformation.