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When and how to use faster payments in USA

Corporates in the USA are struggling to understand when and where to use the new local Faster Payments services that are coming to market. Banks are devoting a lot of time and effort ins showing their corporate clients what to do. U.S. Bank’s recent TM Forum newsletter contained important and useful ideas. The first and most important point is that speed is only part of the real value: it’s efficiency, flexibility, transparency, simplicity and security which are much more important. Each faster payment solution has a component of speed, but the real value lies in how organizations can more easily meet their objectives.

Four main solutions

U.S. Bank believe that four faster payments solutions are gaining momentum in the USA: 

  • Same Day ACH: A rule adopted by NACHA allows for payment processing within one business day using the existing ACH infrastructure. Same Day ACH is limited to domestic transactions under $25,000 and only allows for credits (debits are coming in September 2017).
  • Zelle: Formerly known as clearXchange, Zelle is a network used by large banks (including U.S. Bank) to allow for alias-based person-to-person (P2P) and business-to-consumer (B2C) payments using an email address or mobile number
  • Visa Direct or MasterCard Send: A system that uses the Visa and MasterCard debit networks to allow for instant payments to a consumer’s bank account
  • Real-Time Payments (RTP): A comprehensive real-time network from The Clearing House using a new infrastructure, scheduled to launch in mid-2017.

When to use:

  • Use Same Day ACH when: 
    • Same-day settlement is important and extensive data (addenda) with the payment is neede
    • Payments are domestic and less than $25,000
  • Zelle for:
    • Relatively small (i.e., less than $5,000) payments to individuals
    • When email addresses and phone numbers for payees are easy to obtain and validate
    • When bank account information isn’t easy to obtain or store
    • Vendors and customers have an established RTP infrastructure
    • There’s a need to communicate extensive data between trading partners
    • Speed of payment is a critical need
  • Visa Direct or MasterCard Send for:
    • Consumer payments are relatively small (i.e., less than $5,000)
    • Payments where debit card information is easy to obtain
  • Real-Time Payments (RTP) to/from businesses: 
    • Vendors and customers have an established RTP infrastructure
    • There’s a need to communicate extensive data between trading partners
    • Speed of payment is a critical need
  • RTP to/from businesses:
    • Request for Payment (RFP) adds value
    • A direct debit program is not a practical alternative

When not to use (look elsewhere):

  • Same Day ACH
    • Real time, immediate funds are important
    • Confirmation is required
    • Irrevocable funds are necessary
    • Payments are greater than $25,000
  • Zelle
  • Payments are relatively high (i.e., more than $5,000)
  • Email addresses aren’t easy to obtain or validate
  • Cheaper alternatives (e.g., ACH, card) are just as easy to use
    • Payments are to businesses
  • Visa Direct or MasterCard Send
    • Payments are relatively high (i.e., more than $5,000)
    • ACH information is available and already stored
    • Recipients are already registered with Zelle
    • Payments are to businesses
  • Real-Time Payments (RTP) to/from businesses
    • Payment posting and communication isn’t currently an issue
    • Vendors and customers haven’t established RTP infrastructure
  • RTP to/from consumers
  • Electronic alternatives (ACH, Zelle, Visa Direct/ MasterCard Send) are established and working
  • The Request for Payment (RFP) model doesn’t enhance posting procedures

The newsletter then focuses on helping clients visualizes how and where each solution impacts their processes. 

CTMfile take: Important sensible ideas. Well worth a read.

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