There is a common misunderstanding that all of the “real-time” payment networks deployed worldwide deliver similar, if not the same, accessibility to funds without restriction—the assumption being that funds are transferred immediately from the general possession of a sender to the general possession of a recipient.
In reality, however, the term “general possession” can be misleading, especially in wallet-based networks that require an additional period of time to clear due to settlement lag in the funds transfer. Inevitably, this results in different meanings for different payment networks.
Wallet-based systems have become some of the most popular options for funds transfers. They are typically operated by nonbank fintech firms and require end users to maintain individual accounts on the payment networks (like Venmo, for example).
With the Venmo-style method, funds can be used intranetwork without restriction, but cannot be moved to non-network accounts, such as banking accounts, until the funds have cleared and settled. The risk of insufficient funds requires this restriction, which is removed as soon as a successful settlement has occurred.
For immediate, unrestricted availability of funds, the only true providers are those networks operated by banks or other financial institutions.
Current and proposed networks such as Zelle, Real Time Payments (RTP), Faster Payments Service (FPS) and Real Time Gross Settlement (RTGS) can all provide true, immediate access to transferred funds because money moves on these networks from member-to-member bank accounts. Even if clearing and settlement lag payment initiation, the sending bank guarantees funds will be available, that all fund transfers will be properly debited or credited, and that asset transfers between account-holding institutions will occur to support the transfers.
To meet the demands for true real-time payments networks, several initiatives around the globe have been completed or initiated.
Zelle offers its near real-time payment services to customers of its associated member banks allowing them to receive payments within minutes of origination, with transferred funds being immediately available to recipients through their member accounts. Nonmember bank customers can still sign up for a Zelle mobile app, which can be associated with a checking or savings account, or a debit card tied to an account with an institution that is part of a Visa or Mastercard network. Even though funds transfers can occur within minutes, final settlement is carried out using standard ACH mechanisms.
A national payments network created in Australia by NPP Australia Ltd and 13 financial institutions went live in 2018 permitting customers of connected institutions to transfer funds from their accounts to accounts of other connected bank customers within minutes. Final settlement of funds transfer transactions between banks occurs quickly using the Reserve Bank of Australia’s Fast Settlement Service (FSS), with NPP maintaining proxies for banking accounts to help individuals identify their intended recipients.
Real-Time Payments (RTP) is another example. This U.S.-based payments network, owned and operated by The Clearing House, provides near-real‑time payments services for its member banks and third-party processors. Like the NPP, RTP permits customers of connected institutions to transfer funds from their accounts to the accounts of other connected banking customers within minutes. However, unlike the NPP, RTP is focused on the entire ordering and payments life cycle and allows fund transfers to be related to specific orders. Funds transfer transactions are settled within minutes with reconciliation among the banks involved in funds transfer operations occurring several times each day.
In the U.K., the Faster Payments Service (FPS) started in 2008 and is considered the model for RTP. Like RTP, FPS provides near-real-time payments services for its member banks and third-party processors, with customers of connected institutions being able to transfer funds from their accounts to other connected customer accounts within minutes. While funds are immediately available to recipients, settlement among banks involved in the transactions occurs during scheduled runs three times daily. Customers transferring funds need to know account numbers for recipients since FPS does not maintain account proxies to assist them.
Real‑Time Gross Settlement (RTGS), a real‑time payments network, is another concept currently under consideration by the U.S. Federal Reserve. Based on desirable features identified by the Faster Payments Task Force (FPTF) commissioned by the Fed, RTGS will support real‑time gross settlement instead of deferred net settlement—in effect, each individual funds transfer transaction will be separately cleared and settled.
RTGS incorporates both clearing and settlement services into a single step. In fact, each funds transfer transaction will be settled before funds are actually moved between sender and receiver accounts. This guarantees that interbank assets supporting funds clearing will be available prior to the debiting and crediting of sender and receiver accounts. This also eliminates the possibility that an institution possessing a net debit position with another institution at settlement would not have sufficient assets to cover the position.
Regardless of the system, one major drawback with all real-time payment options is that once a payment is made, it cannot be undone. Simply changing one’s mind is not an option for senders of real-time payments, with mistaken or misdirected funds transfers being very difficult to rectify. Generally, real‑time payments networks take a hands-off position when it comes to resolving disputed end‑to‑end payments, leaving the financial institutions involved to address the problems. In turn, unless the senders and recipients of disputed transfers agree to appropriate reimbursements, financial institutions tend to back away, letting the parties resolve their disputes using other mechanisms.
