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In this day and age, when we expect a Google search to serve up thousands of web pages of information in milliseconds and virtually any communication anywhere in the world to be instantaneous, it seems fitting that payments are starting to catch up to this level of speed.
The recent launch and first implementations earlier this year of The Clearing House's groundbreaking Real-Time Payments (RTP) system in the US herald a new age for payments. It allows electronic invoicing, bill payments and other consumer transactions which may have taken days to process in the past to go through in seconds. Many of the country's largest banks are testing this and other platforms, which could come online by the end of this year even.
While that uptake seems fast for banking, it's important to remember that the advent of real-time payments has been a slow and long-awaited process. Both banks and customers seem eager for real time payments.
But, just as prior 21st century innovations have all enabled a wealth of new opportunities for companies and consumers alike, they have also created new types of risk. Real-time payments are no different.
Proponents argue that RTP may reduce collections losses and delinquencies, since banks will be able to initiate or confirm payments or approve loans immediately.
Opponents argue that having such speed can make fixing issues much more problematic and costly. Banks, customers and others who issue a payment for the wrong amount, or make some other clerical error, may not be able to get the money back. That hurts relationships and can anger customers. Faster transaction times also mean much less time to screen and monitor transactions for fraud.
Essentially, RTP platforms work as credit-transfer systems. That means online criminals will likely have an easier time absconding with stolen funds from a bank or a legitimate account, and transferring multiple times, before anyone becomes aware of the scam.
For now though, since RTP is limited to domestic payments, advocates believe these faster payments will not further enable cross-border financial crime.
Ultimately, just like any new technological innovation, RTP will require new methods and controls to mitigate and manage these new risks. For example, one technology vendor that works with community banks to pilot and deploy real-time payments uses multi-factor authentication and a multi-layer validation process to better ensure the validity and legitimacy of transactions as they happen. Just like enrolling for bill payment or setting up an account with an online retailer, the process requires payees to register so their data can be used and checked for future faster payments. The process uses data analytics, decisioning and scoring to assess the riskiness of a real-time payment transaction.
There is still work to be done but real progress is being made. RTP will eventually become a reality in banking, and in the meantime, we will keep you up to date, given the continual buzzing sounds around this technology.