The concept of faster and real-time payments has evolved in the United States, resulting in the launch of several networks, platforms, and products constituting a growing part of the payments system. This trend is driven in part by consumers, who have come to expect speed and convenience in shopping, transportation, and banking. Merchants, too, have been pushing for faster payments, which they believe offer faster cash flow and increased customer satisfaction. At the same time, advancing technology is making faster payments capabilities more widely available and economically feasible.
Faster payments are in use or being planned in over 50 countries around the world, most notably in the United Kingdom, where a pioneering Faster Payments scheme was established in 2008. In the U.S., however, the topic really did not gain traction until 2015, when the Federal Reserve released its faster payments strategy. Since then, we’ve seen the 2016 launch of Same Day ACH credits and debits, The Clearing House’s introduction of its Real Time Payments (RTP) service, Early Warning’s introduction of the Zelle service, and the card networks’ launching of their new card-network-based account transfers, Mastercard Send and Visa Direct.
In mid-2019, the Federal Reserve joined the fray, announcing plans for its own faster payments service, the FedNow Service, which is expected to come online in 2023 or 2024. This service will process and settle individual payments within seconds on a 24X7 basis and initially support transactions of up to $25,000 in value. Although some industry observers have expressed concern about the Fed providing its own proprietary service in this space, the announcement seems to have removed some uncertainty from the market and prompted increased interest and activity in faster payments.
The term “faster payments” is quite broad. In essence, it simply means payments that are faster than those by traditional methods. Vendors’ solutions vary significantly. For example, SDA posts and settles transactions within 24 hours. Others, such as Early Warning’s Zelle service, post transactions almost immediately but settle at the end of the day or the next day. Currently, the fastest is The Clearing House’s RTP service, which posts within seconds and settles immediately.
The U.S. market is still in the early stages of adopting faster payments, and obstacles remain to be overcome. The market is still somewhat fragmented, and banks and merchants need to prepare their own infrastructures for this new era. But investments and interest in faster payments are moving forward. Mercator Advisory Group estimates that in 2020, the U.S. will see $905 billion in faster payments across B2B, P2P, B2C, and C2B channels, as shown in Figure 1. This total includes all forms of faster payments: same day ACH, Zelle, debit push payments, and RTP. In the not too distant future, faster payments will be a familiar and widely expected reality.
However, with increased speed and convenience also come new opportunities for fraud. To keep transactions as secure as possible, the payments industry will need to understand this evolving threat and adapt new technologies and new methods that can keep pace with the emerging challenges.
Mercator Advisory Group releases new research, Faster and Real-Time Payments Fraud, reviewing current trends in fighting the unique challenges presented by faster and real time payments fraud.