Is time running out for small banks in real-time payments?

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A growing number of businesses are warming up to real-time payments.

More than 41% of the roughly 150 companies surveyed by Citizens Financial Group are in talks with their banks about the real-time payments network, or they are having discussion about doing so. The Providence, R.I., regional bank conducted its survey in March and April.

The $161.3 billion-asset Citizens released its results Thursday, one day after the $1.6 billion-asset Avidia Bank in Hudson, Mass., announced plans to become the first community bank to join The Clearing House’s real-time payments system.

While nearly 90% of the businesses polled said they were content with the current payments system, Michael Cummins, who heads treasury solutions at Citizens, said banks shouldn’t rely on that finding as a rationale to delay converting to real-time payments. Those that wait too long run a real risk of losing customers, he said.

“Businesses see this as a crucial opportunity to modernize payment practices,” Cummins said in an interview. “There are tremendous advantages in terms of speed and certainty of payment. … It will be transformative.”

Owned by a consortium of the nation’s largest banks, The Clearing House began developing its real-time payments platform in 2014, focusing on business payments. To date, small banks have been reluctant to commit, going as far as urging the Federal Reserve to create a competing system.

Cummins, who joined Citizens in 2014, discussed the survey's findings and Citizens’ experience with real-time payments. Here is an excerpt of that conversation.

Was there anything in the results that caused Citizens to rethink its own strategy?
MICHAEL CUMMINS: No. I think, from a Citizens perspective, we had a pretty strong strategy around real-time payments and how we were going to market this and talk to our customers about it. We really believe in real-time payments. We really believe it’s going to be a market changer. Whenever you have something that’s new and innovative from a product perspective, you want to make sure you’re talking to your customers about it. We’ve kind of kept that strategy in mind, and we’re still going to move forward with it.

Was there anything that surprised you?
It still surprises me that so many of our customers continue to use paper and cash. I’ve been in the cash-management business for the better part of 30 years. For that whole time, we’ve talked about how paper is going to come out of the system and it’s all going to be electronic. When you think about some of our counterparts across the globe, they’ve adopted electronic payments much more quickly than we have in the United States.

From our survey, 75% of businesses still make or accept payments using checks and 45% still make or accept payments in cash. That was a real surprise to me … more so than anything cash. Where are these people?

You see real-time payments as a game-changer in coming years. Can you explain why?
I feel that real-time payments will be a catalyst to change these percentages — for sure.

The precise nature of real-time payments, with the appropriate level of information that follows each payment, is going to change how companies make payments from a cash and a check perspective.

My generation, I’m 52, has held on to [checks]. The younger generation has never seen a checkbook. They know they’re out there and they exist, like Bigfoot. They don’t actually use them. Their whole lives have been [about] electronic payments. I think that, coupled with real-time payments, is really going to have an impact on paper checks and cash.

I’m a firm believer that real-time payments should be adopted by all banks because it is market leading. It’s the first new payment rail in over 40 years. It’s going to help customers be more efficient. … At the end of the day, as a banker that’s our job, to help our clients.

Is the technology ready?
The infrastructure is there. If you look at Citizens, we have the capability to receive and send real-time payments. We're up and running. The Clearing House’s rails are running. The product has been built. There are a number of banks on the rails.


Not all banks have the same resources as Citizens. What are the implications for small banks? Could a delayed decision create difficulties?
Depending on how quickly companies and consumers adopt real-time payments, it could have an impact on a smaller community bank that has not bought into the technology, either through some kind of consortium or building the technology. I think it would impact their chances of being competitive. I don’t think [conversion] is cost prohibitive.

I imagine credit unions are having the same kinds of discussions as community banks.
Yes, I absolutely agree with you.

How long has Citizens been working on real-time payments?
We’ve been working on this the better part of two years.

It’s fair to call Citizens an early adopter. How long before the rest of the industry catches up?
Real-time payments are on everyone’s strategic agenda, how they’re going to do it if they haven’t already. So, [banks] are very aware of it. There are some smaller banks that have it up and running. Large banks absolutely do. The larger regional banks do, and I think that over time you’ll see it getting down to [more] smaller banks because they’ll recognize the importance of it. They won’t want to have the competitive disadvantage of not being able to do it.

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