US banks speed up with first new payment system in 40 years
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NEW YORK, Nov 14 — An organisation of 25 US banks this week started the first new payment clearance and settlement system for the United States in more than 40 years, offering the prospect that businesses and individuals will be able to better track their funds minute-by-minute and use fewer paper checks.
The inaugural transaction came late at 4:59:40pm (20:59:40 GMT) yesterday in a test when Bank of New York Mellon and US Bancorp and moved a nominal US$3.50 (RM14.66) between different accounts owned by a single client at the two institutions, according to BNY Mellon.
The little bit of money moved over RTP, the name for a new “Real-Time Payments” system set up by The Clearing House, a 164-year-old, bank-owned institution.
The system showed that the funds moved between accounts in three seconds, compared with the hours, or days, it takes now to clear over the commonly used ACH system or by check, officials from The Clearing House said.
The first transaction also delivered descriptions to test that the RTP system will carry invoice-like detailed requests for payments, which are irrevocable. Such additional information and certainty should allow businesses, from big insurance companies to small cleaning services, to reconcile their accounts more quickly and inexpensively.
The system is the US banking industry's most significant step towards meeting the demands of impatient business customers who want see banks move more quickly to use digital tools to deliver better services. It is intended to make ordinary tasks such as issuing invoices, paying hourly employees, and settling insurance claims faster and easier to track.
“Business-to-business payments have been some of the most resistant to electronics,” said Steve Ledford, senior vice president for product and strategy at The Clearing House. Those transactions are believed to account for more than half of the paper checks written in the United States.
Today some businesses actually staple paper checks to account files to match payments with bills, Ledford said.
While a three-second transaction may seem slow to individuals used to buying movies or sending money to friends with a click of a computer mouse or touch of finger on a mobile phone, yesterday's transaction was a milestone for US banks in crediting and debiting funds immediately, and recording payment details.
When consumers pay online with debit cards it can be hours before the funds actually move and few details about the transactions carry over to account statements, often making it difficult for people later to recognise deductions from their accounts.
Yesterday's transaction also marked a step toward catching up with real-time payment systems in other countries, such as in the United Kingdom, which started in 2008.
Banks in many other countries have already moved to faster payments after being directed to do so by their governments, often in response to problems with existing systems.
In the United States, the Federal Reserve four years ago began calling together banks, financial technology companies, businesses and consumer groups to encourage to find ways to speed payments. The Clearing House began work on RTP shortly after.
Still, Clearing House officials say the system won't be “ubiquitous” until 2020, and they describe that goal as “ambitious.”
Within the next month or so, The Clearing House expects additional transactions through RTP from six banks: BNY Mellon, US Bancorp, JPMorgan Chase & Co, Citigroup Inc, PNC Financial Services Group and SunTrust Banks Inc. By the end of next year banks holding more than half of US deposits are expected to start using the system.
A number of smaller financial institutions are also expected to use the network with the help of processing firms, such as FIS and Jack Henry & Associates.
How much RTP is used will depend on how the connected banks make the faster payments appealing to their customers.
The banks are looking to reduce their own processing costs but initially they will have to spend time and money to configure their own systems to route payments in and out of the plumbing of RTP. Existing systems have largely sent payment instructions in batches through industry pipes, usually toward the end of the day.
The existing systems have tools to check for mistakes and guard against money laundering and those steps will have to be sped up to use RTP.
“You don't just flip a switch and turn on faster payments,” said Mohammed Badi, a New York-based partner in the financial institutions practice of The Boston Consulting Group. — Reuters