The first payment Suresh Ramamurthi made with his bank's real-time system was only 25 cents. But that small transfer made a big impression.
"You could see the money show up within minutes of pressing the send button," said Ramamurthi, chairman of CBW Bank in Weir, Kansas. "It was like magic." The $14.5 million-asset bank's real-time payments tool OneCard, which rides the rails of major debit networks to clear transactions almost instantly, was set to launch in the first quarter for business clients.
The benefits of real-time payments go far beyond the cool factor. The Federal Reserve's recent report on modernizing the system lays out five categories of transactions that would stand to gain from same-day or intraday settlements. These include person-to-business transactions such as emergency bill payments; business-to-person transactions such as medical insurance claims and payroll corrections; business-to-business transactions including supplier payments; and person-to-person transactions between friends and microbusinesses. About 29 billion transactions, or 12% of all U.S. payments annually, fall into one of these five categories.
Some advantages of faster payments come down to convenience. Faster person-to-person payments could help friends more easily pay one another back for burgers and split cab fares, and spare them the social awkwardness of reminding one another about their debts.
But faster payments also have the potential to make a material difference in many people's lives. They can be a major boon for non-salaried workers, according to Jordan Lampe, communications director at Dwolla, a real-time payments startup.
Fast-clearing payments allow "a payroll company to cater to the on-demand economy, paying people hourly wages on an hourly or daily basis," Lampe said. "Instead of getting paid every two weeks, you get paid as soon as you clock out."
More than 90% of the 1,500 payroll professionals surveyed by Nacha in November 2014 study said that a ubiquitous same-day settlement option would help them get wages to employees more efficiently.
Broadly speaking, "if you're in a real-time scenario, you're eliminating drag," said Andy Schmidt, a research director at CEB TowerGroup. "When you have at least the advice that funds are arriving and that's immediately visible, people can actually make plans and decisions."
Faster payments don't appear to present wildly lucrative opportunities for banks in the short term. By the Fed's own estimate, the business case for speedier transactions is "net neutral to negative" through 2025.
But Americans have become accustomed to on-demand services in the digital age, according to Bob Steen, chief executive of Bridge Community Bank in Mount Vernon, Iowa. Banks risk eventually losing customers if they keep them waiting for payments to clear, he said.
"Customers' expectations are higher," Steen said. "And because of human nature, we want things to work better and faster. You've got a 4G phone, you wouldn't go back to a 3G phone."
"It's a very difficult business case but a critical strategic case," he added. "I didn't invent those words. It's pretty much the consensus."