Taking to the stage on the penultimate day of the AFP conference in Nashville’s Music City Center, were Netflix’s Joshua Karoly, The Clearing House’s Cheryl Gurz, US Bank’s Mike Thomas in a panel led by Strategic Resource Management’s Dean Nolan.
The panel discussed the evolution and benefits of instant payments and request for payment (RFP) systems throughout 2024, highlighting key metrics that included FedNow’s growth to over 1000 financial institutions, and the real time payment (RTP) network’s one billionth payment.
It was evident that the US audience were sceptical of RFP’s benefits, but the panel tried its best to convince them using the fact that RFP allows payers to control payment timing and payees can receive funds immediately. While use cases such as broker dealers, recurring payments, and small businesses were explored and challenges such as fraud prevention and consumer education were addressed, the discussion also emphasised the importance of a controlled rollout and the need for banks to support RFP to enhance user experience.
What is Request for Payment? The session defined this initiative as “a non-financial instant payment message that allows payees to request funds for payors through their respective financial institutions.” The benefits of RFP include:
- Security: payor controls when/if payment is made;
- Precision: payor makes the payment exactly when they want it made (no surprises);
- Funds availability – full amount of payment is available to payee immediately upon receipt;
- Efficiency – included data supports straight through processing for payor and payee.
Thomas added: “On the payee side, you’re in control of the data. On the payer side, you’re in control of the timing, so the control is in the right party’s hands vs. what we’ve built over the last 40 years with the ACH environment where I needed to reconcile all the data together with the payment because they’re flowing separately. RFP leaves that altogether into a flow.”
Gurz reiterated that it is not only about faster payments, but precision. “The RTP networks are credit push networks. They were designed as 24/7 and they are irrevocable because credits can only be pushed to the receiver.
“The network then asked: how could we add a receivables component? Many of you in treasury have the payable side and RTP in its native form is all about disbursements. It’s all about scheduling your payment, get your working capital and your cash flow all focused on dispersing, not faster, but with precision when you need what the RFP was designed to do and why it’s coming as an enhancement later on.”
Migrating to an RFP programme is a new prospect, and Gurz added that the technical integration seems to be the easiest hurdle to overcome from a clearance perspective. The banking sector is accustomed to direct debit, but with RFP being a completely new way to make a payment and a new way to receive a receivable, a phased approach that weeds out the risks – and assumed risks – is the best way forward.
After account to account, bank to bank, bank to broker, business to business, traditional consumer bill pay, and fund payments, phase two of the rollout of real time payments covered closed networks. Pay by Bank is the next step, which Gurz explained is arguably the “most risky” due to protection and security concerns.
In Karoly’s view, recurring subscriptions are a way of life for the majority of consumers today. He said: “Everyone pays for a recurrent subscription out there, and most times it's for something - not always, but many times - it's for something that you want immediate access to as well. We found that a certain percentage of our customer base want to pay us directly from the bank account. They don't want to use a credit card, they don't want to use a debit card, they don't want to use PayPal. They want to pay directly for the bank account. We have an issue with the current rails today because they do not provide instant funds. In my mind, instant bank rails were a great solution and a great way we can address that.”
He added that with standing approvals like RFP provide, a customer can communicate with the bank, approve the credit and push funds to the merchant. And if the customer wants to cancel the subscription, that can be done too – through the bank or the merchant. Thomas agreed that this “creates transparency that doesn’t exist today. Giving the consumer the ability and the choice on both sides is important. It may also be an avenue that we are exploring to allow that back and forth.”