Businesses, financial institutions and even consumers have been more willing to adopt real-time payments as more uses become apparent. But one subset of instant processing, Request for Payment, has been slower to gain traction.
Data company Plaid is anticipating that will change by launching its own RfP product, which is powered by Cross River Bank.
"A big missing piece in [
RfP enables businesses to request payments from a consumer or other business. The payee receives an RfP notification about the request from a bank or third party app., Upon the payee's approval, a payment is sent back to the merchant and is instantly available. RfP can run on both
Consumers' financial institutions need to have RfP enabled on their end, Dammier said. "Part of the solution is, we know which banks have and haven't [enabled RfP]. We are able to then guide Carvana and the customer via API to either offer [the RfP] solution or to fall back to a traditional ACH payment."
Why Carvana Is Embracing Real-Time Payments
One of Plaid's first adopters of the payments tech is used-car e-commerce retailer Carvana, a
Carvana is using Plaid's Request for Payment (RfP) to allow customers to make a downpayment on their vehicle. The solution is embedded on Carvana's website, and Plaid manages the bank account connection, the risk and fraud assessments and the money movement between the customers' account and Carvana.
Carvana, for its part, is looking to further reduce friction in the car buying process while at the same time avoiding high fees associated with credit card transactions that are far and away the most popular form of payment for ecommerce transactions thanks to its risk controls and instant settlement capabilities.
To that end, RfP is a "particularly interesting product" for the car seller, said Matt Dundas, VP of finance at Carvana.
"The biggest drawback of cards is that they're relatively expensive to process. You may be looking at multiple points of revenue that's going to processing fees," Dundas told American Banker. "If you drill into our part of the economy – automotive retail – the dollars are very large in terms of transaction size, and the margin as a percentage is not terribly high compared to other parts of the economy."
Carvana has been leveraging the ACH rails to process those high-value transactions since its launch in 2013."ACH was our only payment method, and it remains our dominant payment method in terms of dollars processed," he said.
But ACH comes with its own challenges. "It's sort of like a digital paper check, and the processing and settlement is obviously very long, so we've had to adapt our business to deal with all the risks and headaches and friction that comes with ACH rails," Dundas said.
Namely, Carvana has to wait for the transaction to clear before delivering the vehicle, a process that can sometimes take days. That's at odds with one of Carvana's business propositions: same day delivery, which it offers in select markets across 15 states, including California, Florida and Texas – the three largest U.S. markets for auto sales.
"This payment rail is instant and it has a lot of the positive properties of card payments, without the significant cost of card payments," Dundas said.
Challenges Slowing Adoption of RfP
Consumer adoption for RfP has largely been limited to utility bill payments or other transactions that consumers make on a regular basis, such as subscription payments. It's also most commonly seen in
Financial institutions have also been slow to adopt RfP, said Adam Goller, chief fintech officer at Cross River Bank. One reason is due to costly technical integrations.
"Folks will definitely want to know that the cost is worth it. So if the use case that they're focused on is not being supported, they won't do it," Goller told American Banker.
Another reason is transaction monitoring requirements. "Regulators want to know that you have controls that you can properly monitor activity," he said.
That's not to say banks haven't adopted RfP for other use cases. U.S. Bank, for example, has implemented RfP for its clients to fund their brokerage accounts and has seen great adoption for that use case, Elavon CEO Jamie Walker said during The Clearing House's Annual Conference last November. "Once they use it once, they will continually use it just because, obviously, funds are available right away," he said.
Why High-Ticket Use Cases May Change the Game
Other use-cases real-time payments tech have been picking up steam, especially with high value transactions, said Rusiru Gunasena, SVP and head of partnerships at The Clearing House.
"Request for Payment is taking off," Gunasena told American Banker. "That's going to revolutionize the bill pay payment space… for the credit card, for the mortgage payment. The
Security Concerns and Fraud Risk with RfP
Proponents of RfP say that it reduces the risk of fraud because the sender authorizes the payment to the recipient.
But that doesn't mean there still isn't room for scams, said Daniela Hawkins, a partner at Capco.
"There's a lot of fraud in that space," Hawkins told American Banker. "As an example, almost monthly, I get an email that looks like PayPal with a request for payment… In some cases, it's so sophisticated it's showing up in PayPal [account] as a request to pay."
That risk of scams makes people wary to give out their checking and routing numbers.
"Once those numbers are compromised, it's hard to put the toothpaste back in the tube," Hawkins said.
Plaid maintains that its flow doesn't share the same risk because it doesn't require customers to manually enter or share account information – a feature that it hopes will increase consumer adoption of the service. Instead, it uses Plaid Link, a user interface component that allows users to securely connect their bank accounts to apps and services, a company spokesperson confirmed with American Banker
"This approach avoids the risks associated with manually sharing account and routing numbers and adds layers of security through encrypted connections, account ownership verification, and eligibility checks," the spokesperson said. " In effect, Plaid's role here does tokenize and abstract sensitive information."
