Send a bill payment across the automated clearing house network on a Thursday night and it might arrive in the recipient's account by Monday. Or not. Either way, it's a snail's pace versus what happens in countries such as Sweden and the United Kingdom, where electronic payments are closed almost in real time.
Here in the United States, an industry proposal to speed up settlement times got torpedoed 18 months ago by big banks with a stake in maintaining the status quo. But make no mistake: it's time to get ready for same-day settlement.
In the wake of the failed proposal by Nacha, the industry-owned group that sets ACH rules, the nation's Federal Reserve banks established a 10-year roadmap calling for an eventual shift to near-real-time payments. Although it's not clear how far the Fed will go in nudging the industry toward that goal, it would be naïve for bankers to ignore the need for—and the long-term inevitability of—a faster payments system.
The most immediate choice banks face is whether to join one of the faster, closed-loop payments networks that have emerged of late. The proprietary networks include PayNet, built by the technology provider FIS, which has more than 180 banks participating; and PopMoney, developed by Fiserv, which is processing person-to-person payments for a number of the nation's largest banks. There's also clearXchange, developed jointly by JPMorgan Chase, Wells Fargo and Bank of America. It recently announced that Lakewood, Colo.-based FirstBank is joining the network.
But the closed-loop networks still suffer from a lack of ubiquity. A network that lets people send money to customers of 200 other banks is far less useful than one that lets them send cash to customers of any of the 14,000 banks and credit unions nationwide.
So does it make sense to align your bank with one of these systems as they work toward achieving critical mass? That depends in part on who your customers are.
"More than likely this is going to be a retail initiative," so banks that rely on retail customers may see value in being an early adopter, says Gene Neyer, senior vice president of global payments at the technology firm Fundtech. Corporate banks, on the other hand, may want to wait until the dust settles, although some of them—especially banks that cater to the technology sector—may prefer to get ahead of the curve.
But even banks that choose to sit on the sidelines can take steps now, preparing for systems upgrades for example, in anticipation of the eventual arrival of faster payments. "Take this as an opportunity to look at the modern technology," Neyer advises. Because in the brave new world of fast processing, the same old technology just won't do.