Jim Aramanda, president and CEO of The Clearing House, explains why the RTP (Real-Time Payments) network is the payments system built for the 21st-century digital economy. In this excerpt from The Connected Economy’s Power Source – CEO Edition, Aramanda shares his insights on the growing need for financial inclusion and greater payments control for consumers.
The digital economy, which has been growing at a rapid pace for the better part of the past decade, accelerated to warp speed in 2020 as the pandemic forced sweeping societal changes from analog to digital. Consumers turned to online shopping for groceries and almost anything else needed for daily life. Netflix and other streaming services essentially replaced movie theaters and live events as forms of entertainment. Companies had to rework business processes as many of their employees shifted to virtual work, and traditional supply chains were disrupted.
Even as the digital economy has grown, there has been a renewed focus on financial inclusion and the challenges faced by those living paycheck to paycheck. Demands for faster payments and quicker funds availability reflect policy-makers’ view that the financial industry can and should do more. Instant 24/7 payments, such as those provided on The Clearing House’s RTP® network, offer banks an opportunity to advance this important policy objective in several ways.
First, the design of the RTP network puts consumers in control. They initiate their payments and immediately receive confirmation that payment has been completed and that the funds are available. In other words, consumers can better manage cash flow to avoid overdrafts.
Second, it provides opportunities to change payment behaviors in ways that can benefit consumers and small businesses alike. For example, today the RTP network is providing the opportunity for many retail and gig economy companies to complete payroll on demand for many of their employees. This allows employees to receive their pay at the end of every shift. Merchant acquirers and payment processors are sending payments at the end of every day to small and medium-sized businesses, many of which have struggled with cash flow throughout the pandemic. With instant payments, small businesses can have immediate access to funds so they can pay suppliers, replenish inventory and pay their workers instantly.
The rich messaging capabilities that accompany instant payments on the RTP network is also a powerful tool unlocked by the network. The messaging functionality on the RTP network includes instant confirmations and other data-rich capabilities that make it ideal for consumers and businesses so they can know exactly what the payment is for and when it is received, and then immediately see it reflected in their bank accounts. The request for payment functionality is especially exciting as it will eliminate the need for consumers to provide third parties with the right to debit their accounts in order to make bill payments.
These are just a few examples of how instant payments bring the capabilities of financial institutions on the RTP network in line with expectations for today’s economy and the principles of financial inclusion. To put it another way, instant payments through the RTP network can provide banks and credit unions with a key tool in their arsenal to continue to organically grow their deposit franchises, as customers are more likely to stick with an FI that enriches their ability to manage cash flows by providing immediate availability of incoming funds and instant payment confirmations. Blockbuster was the 20th-century method to watch movies at home. Netflix is the 21st-century method to do the same. Likewise, the RTP network is the payments system built for the 21st-century digital economy.
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