How Real-Time Payments Can Boost the Speed of Business for SMBs

Real-time payments innovation will continue, moving to facilitate faster payment services and remittance offerings for small businesses across digital wallets, ACH payments, mobile payments, direct debit, and credit cards. 

Transcription:

Mary Ellen Egan (00:13):

Hi everybody. Welcome and thank you for joining us today for our Small Business Banking Digital Imperatives Virtual Summit. I'm Mary Ellen Egan, a Senior Director of Content and Strategy Live Media for American Banker. We're going to talk about a number of things today when you think about what small businesses are facing, which is challenging in the best of times and even more challenging when times are a little more difficult. Small businesses are facing market uncertainty today, increased costs, supply chain disruptions, the impact of tariffs. There's a lot going on that small businesses are grappling with. But today, our panel of experts are going to talk about tools, technologies, and strategies which, in partnership with banks, can help small businesses address some of these challenges while also increasing operational efficiency. We're going to discuss how real-time payments can boost business, how Gen AI can unlock opportunities, and cashflow management tools to help small businesses operate more efficiently. So, a little programming note: Each session will be 40 minutes long. We'll have a 10-minute break in between and then we'll rejoin the next panel in session.
I'd like to introduce our first panel. We're going to welcome Joey Pizzolato, who's going to moderate a discussion on how real-time payments can help speed business for SMBs. Go ahead, Joey. Thank you so much and thank you for joining us.

Joey Pizzolato (01:53):

Thanks, Mary Ellen, for the introduction, and good afternoon everyone. Welcome to our first session of American Banker's Small Business Banking Virtual Summit:
How Real-Time Payments Can Boost the Speed of Business for SMBs. Thanks for joining us. Before we get started, just a little bit of housekeeping. We'll have Q&A during each session. You can just type your questions directly in the attendee hub, and your moderator will do their best to get to them toward the end of the session. So now, onto our session. It's my pleasure to introduce our panelists. Joining me today, we have Jim Colassano, Senior Vice President, Product Development and Strategy at The Clearing House; Allysun Fleming, Executive Vice President, Executive Director of Payments, Comerica; and Scott Beyer, Senior Vice President Business Banking Product at US Bank. Thanks so much for being here today everyone. Before we dive in, I want to give you all an opportunity to introduce yourselves. Go ahead and tell us a little bit about your role at your organization. Allysun, maybe you want to kick us off?

Allysun Fleming (02:59):

Sure. I'm Allysun Fleming. I run all aspects of the payments division here at Comerica, which includes sales, product, our middle office functions, and our back office fraud and operations teams. I'm super passionate about this topic because I'm also the daughter of a small business owner, so thanks for having me today.

Joey Pizzolato (03:16):

Great, thanks. Scott, how about you? Go next.

Scott Beyer (03:21):

Yeah, thanks, Joey. Good morning or good afternoon everybody. Scott Beyer from US Bank. I have responsibility within the business banking segment that sits in our consumer and business banking group for product journeys and delivery. So, focused on basically technology, both DIY functionality as well as the banker tools that our sales teams use. I too am the son of a small business owner, so this is certainly a passion of mine and have been in the business banking space for the better part of the last 10 years. So great to be with you all this morning.

Joey Pizzolato (03:54):

Awesome. Thanks, Scott. And Jim, last but not least.

Jim Colassano (03:58):

Thanks. Good afternoon everyone. My name is Jim Colassano. I am the Business Product Management Executive for the RTP network at The Clearing House. I've been with The Clearing House since the launch of the RTP network, which is about eight years now. I have been in banking and in payments my entire career, over 30 years. While I don't have a parent who is a small business owner, I am very, very passionate about this topic and very, very passionate about the small business users. One thing I can tell you is that the value that we see across the network for small business users is extremely high and growing, and I'm looking forward to chatting about it today.

Joey Pizzolato (04:44):

Great, great. Well, let's dive right in. I think first, before we get started about business use cases and how banks and other financial institutions can help small businesses by utilizing real-time payments, I think we need to sort of define what we mean when we say real-time payments and how they differ from other types of faster payments or even ACH. So maybe Jim, you want to start us off there?

Jim Colassano (05:11):

Sure, I'd be happy to. So, generically, let me start with faster payments. We have the traditional rails that have been operating in the US for well over 50 years: ACH, check (has been around for a really long time and image), and the wire transfer systems. To a very large degree, those systems have been becoming very, very efficient over the last several years. On the ACH side, they've been improving their cycle time so that they now have windows that allow transactions to settle same day, but they're still batch-oriented in terms of the way that they operate. While they're accelerating the pace and the speed with which they can settle and deliver transactions, it is still delivered in a batch mode, which is different from instant payments, which is one subset of a faster payment. The instant payment networks—the real-time payment networks in the US are the RTP network and FedNow—are characterized by a settlement structure that is individual for every single transaction.

(06:18):

So, whether it's a penny transaction, whether it's a $10 million transaction, that transaction can be processed 24 hours a day, seven days a week. It will clear and settle with good final funds within seconds. It is a credit push system, meaning you can't pull funds; there are no instant direct debits on the instant payment rails. You can get complete transparency over a transaction. Not only does it clear and settle with good funds instantaneously, but you will get a confirmation back that the person or the organization that you sent the funds to has actually received the money and received that payment. Or, in the event that there was any problem with that payment, you will receive a response within seconds telling you why that payment could not be executed. So, there's complete transparency on every single transaction that goes into the network 24 hours a day, seven days a week, which complements just the instantaneous nature of it. But there's a great deal of additional functionality wrapped around that that provides value over and above some of the traditional payment rails.

Joey Pizzolato (07:31):

Great, thanks. That was a great overview. Allysun or Scott, did you have anything to add to that?

Allysun Fleming (07:37):

Here's how I describe it. I describe real-time payments or instant payments like a text message where you can see that the message has been delivered and you can see when it's been read. If it can't be delivered (if you're an iPhone user), you get that little exclamation point and you can try it again. This is versus an email, which might sit in someone's inbox for quite some time, and you can request a read receipt, but they can always turn it off. I like to use that metaphor because when I am talking to small business owners about making the switch, it's really making the switch mentally from sending 100% of your communications by email to starting to use text for those really truly just-in-time messages or, in this case, payments that are really important.

Joey Pizzolato (08:20):

I like that analogy. Scott?

Scott Beyer (08:23):

Yeah, the only thing I would add is obviously the explanation that Jim provided was great and I think spot on. I think when we talk about how small businesses absorb this information, it's complex. I think it's going to be important as we think about use cases and implementation that we help deliver solutions in context to how they need to move money, rather than focusing on the rails themselves. Instant payments, specifically in RTP, what we're focused on today, really enables us to offer a differentiated money movement experience. I think that's a great thing, and there are very specific use cases where that's really going to benefit small business owners.

Joey Pizzolato (09:04):

Right. Yeah. Before we get into the specific use cases, do you all think that the average small business really understands these key differences, or is this something that really needs to be laid out on the table? Allysun, I see you shaking your head.

Allysun Fleming (09:22):

No, I mean, just out of my own experience of working with my mom and other small business owners, no, it's really overwhelming. Even the term wire, we use the term wire generically in this country to mean a payment that's final, that will clear that same day. It doesn't really necessarily mean it has to travel that particular rail. I think vernacular and the complexity of how many options there are is one of the biggest hurdles we have as banks. We almost have to take all that vernacular out of it and make this so that a small business owner never needs to know, because it's far too much information for somebody whose day job is very different to try and navigate.

Joey Pizzolato (10:07):

Makes sense.

Scott Beyer (10:08):

Couldn't agree more. I think the goal is to not educate small business owners on the rails or on the mechanics of moving money, but relative to what they need to accomplish in the job to be done. I think by taking out the vernacular nomenclature, that will help really in using plain language to educate small business owners about how they need to accomplish a specific task.

Joey Pizzolato (10:36):

Right, exactly. Exactly. Because small business owners, they're really focused on their core business and not necessarily on banking. So, let's get into maybe some sort of broad specific examples, if that makes any sense. But my question is: How can real-time payments address the daily challenges small business owners face, particularly related to cashflow management and these complexities that we were just discussing in the traditional payment systems? Maybe Scott, you want to kick us off on this one?

Scott Beyer (11:15):

Yeah, happy to opine on that one. I think that is the key, right, is the optimization of cash flow for small businesses. Having real-time payments really enables that and enables a small business owner to accelerate accounts receivable, to delay accounts payable, to truly optimize their cashflow. We know that small business owners really live and die by cashflow. That's the primary reason that small businesses fail is due to cashflow challenges. So, if we can accelerate them being able to get cash into their business and allow them an option to pay bills on their due dates, with the money that will arrive, you really take the optimization of cashflow to its maximum extent, and having a real-time payment network allows us to do that.

Joey Pizzolato (12:17):

Yeah. Jim, anything to add?

Jim Colassano (12:20):

Absolutely. Scott's exactly right. Actually, one of the ways the RTP network, to try and get away from the terminology and making it necessary for customers to understand it, really does allow you to make a payment exactly down to the minute or to the second when it needs to be made, and to know with certainty the money has gotten to the party it's going to. That gives you ultimate control of the cash that you have on hand. You can optimize the flow, and you can also use the messaging capability that goes along with it to be able to request funds so that you can provide some precision in terms and not have to deal with float and not have to anticipate a check to get to a supplier. It really does put control back in the hands of the business owner, which is really what you need.

(13:27):

It doesn't require a great deal of insight into how the structure works, how the plumbing works. You just need to know that when you need to make a payment, all you need to know is when it needs to get there. You originate the transaction, and then it has all of the information that you need. To be honest with you, it's intuitive for business owners nowadays because it's the way that they've been taught to expect things instantaneously with finality. Nobody wants to push a button on their phone or a screen on their phone and wait two minutes to get a response on it. Things have to happen instantaneously, and small business owners and consumers alike understand what immediate means. I want what I want when I want it, and when I decide that I need to make a payment, it's got to happen when I do it. I don't ever want to have to worry about it after I initiate that payment. And that's the value of these instant payment networks.

Joey Pizzolato (14:32):

That's a great point. Small business owners are also consumers, and the consumer side of the payment is pretty quick between Zelle, Venmo, and all of that. So you can see why business owners expect that for their business as well. Allysun, did you have anything to add to that?

Allysun Fleming (14:53):

The only thing I would highlight, and it was covered, but I would just maybe position it a little bit differently, which is it allows for work-life integration, which is pretty important. Most small business owners that I know run their business and it's beyond a full-time job. But historically, if I think about the payment windows for ACH or wire, if you were sitting at a soccer game and you recalled that you needed to make a large payment and you're trying to operate from your phone or your iPad, you would just be getting a reference number, and you'd have to check the next day that that payment actually went through because those windows would be closed. But with an RTP, you're getting that instant confirmation, and it doesn't matter that it's a Sunday night or a Sunday afternoon; they're operating 24 by 7 by 365, and that's a big deal. I don't think that small business owners have yet embraced the power of that. I think that's coming, and we'll start to see them use it more and more as they understand how this actually facilitates the way that they're managing the rest of their business.

Joey Pizzolato (15:50):

Right. Great. I really didn't even think about the whole doing business 24/7, sitting at a soccer field, having to make a payment. I can imagine that's very useful for small businesses. So let's jump into specific use cases that small businesses are utilizing RTP for. Jim, you had mentioned at the start that RTP has been live for eight years. So generally speaking, what are some of the most common and successful use cases you've seen small businesses adopt on the network?

Jim Colassano (16:28):

Well, one of the most prevalent for small businesses in particular is merchant settlement. This is to get the proceeds from credit card activity that needs to be settled, and typically settled via ACH. But when you have heavy retail periods like the Christmas period, heavy shopping periods where you actually do need that money on the weekends, the RTP network is a great way to get it. We find that that is one of our fastest growing use cases, where small businesses are getting their merchant settlements on weekends or after hours when they need it for all of those proceeds so they can continue to operate on weekends and not have any cash shortages. The other area where we are seeing a lot of activity—and this is more than just running your business—part of the challenge many small businesses are having today is recruitment of employees.

(17:29):

And what employees are looking for are more benefits and more flexibility. One of the applications, especially coming out of the pandemic, are "work today, get paid today" type of applications. So, one of the applications that we enable through the network is earned wage access—being able to get paid for the time that you've worked before the end of your pay cycle. That's another area that we are seeing growing significantly. It's a capability that can be offered to companies big and small, and it is a significant recruiting tool, which we've heard from recruiters. We've heard from individuals that as they're looking at different employers, they want to take a look at how flexible the benefits are. Being able to get money when you need it to deal with unexpected expenses that come up between pay periods is extremely important, and being able to get it when you want it, because emergencies don't typically happen in the middle of the business day and the banking day; they always happen in the middle of the night or on the weekends.

(18:34):

So, being able to get that money 24 hours a day is extremely important. The last point I would probably make: It was probably the first small business I ever spoke to about real-time payments. It was a barbecue retailer who I spoke with, and he said, "I never realized this, but the first time my bank told me I could use a real-time payment, I contacted one of my suppliers because normally I make the payment, he normally waits for the payment to clear, and then he ships me my parts. But sometimes I have an urgent need." So, I contacted them and I said, "If I send you this real-time payment thing, will you send me my parts sooner?" And the supplier listened to him, and he said, "Let me check with my bank. It's the first time I'm hearing about this."

(19:23):

Then he got back in touch with him and he said, "Yeah, make all your payments to me using the real-time network and I'll ship it out the minute I see the money in my account." What this guy said to me was, "The next thing I did was I contacted every single supplier on my list and made that same commentary." He said it was absolutely unbelievable. Not everybody took me up on it, but the improvement in my supply chain for a small business, that was significant. So, that sticks with me in terms of that conversation, talking about a really happy customer and processing it in a way that was really beneficial to him and his business. So, those are the kind of areas and the type of use cases that we are seeing grow on the network.

Joey Pizzolato (20:07):

That's great. Thanks. Scott, Allysun, I know you both at your respective banks are leveraging real-time payments to launch services that serve small businesses. So, I would love to hear about these specific use cases. Allysun, I'm going to let you go first on that one.

Allysun Fleming (20:28):

Sure. We've put together some compelling packages of services that allow our customers to earn on their balances while they use our services to transact, make payments, receive, do their reconciliation, et cetera. What we've been intentional about, though, is we never exclude real-time payments. In fact, it's integrated into the same payment application as our other rails. It goes back to where we started, which is I don't really want that small business customer to choose. That's really hard. First of all, they don't understand the differences. Secondly, real-time payment sounds kind of scary if you really don't know what it does. There's something off-putting about it; it sounds dangerous, maybe, especially for some of our customers that had a hard time letting go of checks in the first place. So, we've actually just put them all together, put them in the same experience, and we're trying to allow customers who want to choose which rail to choose, while allowing customers who don't want to choose, who just need the payment to get there, we're trying to assist them through the user experience to make a recommendation. The other thing that we're experimenting with our small business customers, it's kind of interesting: We find a lot of our customers have multiple accounts at a series of institutions, which we wish they would bank exclusively with us. But given the dispersed financial institutions they work with, talking about making their "me-to-me" transfers using the real-time network. Back to cashflow and cash forecasting, if you've decided to pay yourself and your own consumer accounts are somewhere else, how to use those real-time rails to facilitate that interbank transfer process so that it feels like the funds are moving within the same institution has been the other thing that we've been working quite intentionally with our small business customers on.

Joey Pizzolato (22:11):

Great. And what sort of feedback are you getting from your small business customers on those?

Allysun Fleming (22:15):

It's interesting. Once customers make the switch, they find this much easier than a wire, largely because I think as an industry we've learned from some of the vernacular and what does and does not resonate as we describe things, like a Swift BIC. I mean, it's very hard to explain to a small business owner what a Swift BIC is, just as an example. So, I think as an industry, we've created a more user-friendly set of inputs that are required to originate the payment and that go alongside the payment. I think once they make the switch, I very rarely hear someone wanting to go back to the old mechanisms. What's challenging, though, is that some of our small business owners, they really do want to understand the differences, and they specifically want to understand the risks to them. These things get very nuanced. So, we're finding we're having to upgrade our bankers quite a bit to be able to translate between what the rail does to talk more about the risks associated with it and what they might need to be cautious about when they're making an intentional selection for the rail itself.

Joey Pizzolato (23:16):

Great. Great. Scott, what are you all doing at US Bank?

Scott Beyer (23:20):

Yeah, I mean, we've got a number of implementations for RTP specifically. Jim alluded to this, like Elavon Merchant Services and their settlement. Elavon's a wholly owned subsidiary of US Bank, a large payment processor and merchant services provider, and we settle using RTP. So, being able to get funds from credit card transactions that small businesses have accepted into their accounts in real time is a huge win for them, where historically that could have taken a number of days. Our treasury management tools when we're talking about B2B, or whether that be B2C or even C2C use cases, certainly in our treasury management and commercial money movement platforms, are using RTP. Our consumer external transfers—Allysun mentioned moving money between accounts or those types of transfers—are using RTP for that. We've got use cases in our dealer services for our indirect auto lending business, our freight business funding, prepaid cards, paying corporate cards; all of those anywhere where you've historically thought about ACH or electronic money movement is a great opportunity to introduce in areas. It's maybe not the answer for everything, but certainly as another option for all of the reasons that we've described, we've looked at integrating, and in many of those we already have integrated RTP.

Joey Pizzolato (24:50):

Right. Great. Before I even was a payments reporter, I was hearing about what US Bank was doing with real-time payments. So, you guys are well into it. Jim, I already asked you about the most popular use cases that you're seeing from small business, but I'm wondering what are some niche uses that you wouldn't quite expect?

Jim Colassano (25:16):

Well, when you start to take a look at how you can use some of the capabilities of the network, most of them really are the ones that integrate in with the company's user experience. I'm going to take an example, not necessarily a small business example, but I'll take an example of something that was just announced in a press release, which was Carvana, right? Carvana just implemented a use case on the network whereby they can come to your house, buy your car, and you can get paid money in your account as they're driving it out of your driveway. So, using the RTP network to actually move money into the individual's account as they're making the sale—literally closing the transaction right there in real time, right there in the customer's driveway. So, those types of applications, which are somewhat unique and somewhat aligned with the evolving user experience that we're starting to see as many companies, large and small, are leveraging mobile commerce, are leveraging mobile applications to deliver their services.

(26:37):

The one gap that they've had in the past is these batch-oriented systems don't work very well when you're closing out those types of transactions. We are also seeing applications in the mortgage industry for closings, those types of applications, but literally where you're trying to align the customer experience with the actual payment experience, which kind of closes a transaction. It also eliminates risk so that in any type of deferred model when the payment's being made and settled after the fact, you as a company have to incur some risk until that transaction settles. So, those are the types of things that we are seeing, and those are the areas. Those aren't the big volume areas; those aren't the big disbursements. It's not going to generate the big numbers, but those are areas that we are starting to see businesses, large and small, start to look at how they can use the capabilities of the network in terms of improving their customer experience.

(27:39):

I'll also tell you just one little tidbit of information about the users on the network. On a monthly basis, we see over 300,000 businesses, large and small, originating RTP transactions on the network. Some of them, by the way, are just one or two transactions that we see occurring maybe late on a Friday (so after Fedwire closes, but you need to get the money out) or on the weekends, starting to use the RTP network when the more traditional networks are closed. So, it's those types of things that we see. But on the network, we are seeing broad usage across the community, large businesses and small, who are actually using the network on a month-to-month basis.

Joey Pizzolato (28:28):

Awesome, thanks. We do have quite a bit of audience questions coming in. I do want to talk with you all about the role RTP plays in embedded finance, but we're going to pause for just a sec and I'm going to throw some audience questions your way. I'll just lob them up and whoever wants to take it can take it, and if nobody jumps, I will call on you like the old days.

So our first question is:

Would dispersing payroll in real time incur higher fees than doing it in batch? Jim?

Jim Colassano (29:04):

I don't believe so. Actually, one of the real value propositions of migrating payroll over to real-time is the fact that you can actually make payroll on the day it's supposed to be made, right? Typically right now, the biggest problem is that folks have to get paid on the 15th and the 30th of the month. If that payroll period sits or occurs on a Saturday, Sunday, or on a long weekend, you actually don't get that money until the following Monday or Tuesday in those instances. So, it does create some certainty in terms of when payrolls are made, and it deals with any issues that customers have in terms of getting that weird notification on your bank statement that says the payroll has been applied but you can't use it yet; it'll be available to you in a couple of days. So, there are some benefits in terms of real-time payroll. I can't speak to the economics of what banks would charge with respect to it, but I don't see any material difference in terms of the economics of using the RTP network versus using any other network for payroll, and there might be some efficiencies that you could gain.

Joey Pizzolato (30:16):

Thank you. Our next question is: Are there solutions that connect sales in real time with cashflow and payment dispersion to third parties? Allysun, any insights there?

Allysun Fleming (30:34):

So, it's not something we personally have yet. We've certainly evaluated some platforms that are capable of doing that, and we have partners that we do work with that are working on solutions that do exactly that. I think one of the things that we're exploring, it's back to that same concept where we started, which is real-time payments is a mechanism singular. There are other mechanisms inclusive of card, and a lot of our small business customers in particular have e-commerce platforms that they integrated with and they work with daily. So, where we're really focused is how do we use a partner to look at all the data coming in from all the rails, the payment rails that our customers are using, make a—use AI. I know that's one of the topics later today—but use AI to make a recommendation. Use AI to also speed up if it's a receivable, provide an instant discount potentially in the e-comm platform to the customer to encourage their end customer to use a more preferential payment mechanism. Or, if our own customer is originating a payment, to make a recommendation around which rail might be the most beneficial to them from a working capital perspective.

(31:47):

But it's not something that we currently have. I just think it's something that's on its way, and I would expect some banks maybe already have it, and if they don't, many are probably in the same place I am where they're evaluating what that might look like.

Joey Pizzolato (32:00):

Great. Thanks a lot. Scott, did you have anything to add there?

Scott Beyer (32:03):

Yeah, no, I mean I think in both of those first two questions, there's nuance. I think that RTP can solve those challenges; there are use cases, but I think there needs to be balance and there's nuance in those things. So, could it be used for the sales and real-time payment through a third party? Of course, right? That's a great use case. Is it the appropriate rail depending on what the customer is trying to achieve, aspects of risks, who are their vendors, how are they selling? Maybe not. And so it's the same with payroll in the previous question, which is: Is there incremental cost at the rail level? No. But through the overall economics of how money gets moved from a business's accounts to a consumer through payroll and that value chain, there's a number of places. So, there's an opportunity potentially for the payroll company to monetize RTP by leveraging RTP or for the bank to monetize that, right? So, I think all these questions have nuances. But I think as you think through questions and how to leverage real-time payments, think of it as any other ability to move money, and then what's the specific value proposition for real-time payments? Oftentimes you'll see that exposes that question exposes opportunities to leverage the rail.

Joey Pizzolato (33:30):

Great, thanks. And I appreciate you also addressing the first question we had. Our next audience question relates to cards. So the question is: Are cards converging toward real-time payments, and how do they compete with account-to-account payment instruments at the point of sale and in e-commerce? Anybody?

Scott Beyer (33:55):

Yeah, I mean I think once again, it's nuanced, right? I do think, look, and it's like anything else in our lives, the expectation that in the world we live today is immediacy, right? Whether that's how we consume media, when we want to consume it, whether it's shopping or food delivery, and finance has lagged a little bit in that space. We're seeing it with the proliferation of crypto and instant movement, or even just moving money banking 24 hours a day. So, once again, I think it's nuanced. I think that cards offer protections and other benefits where cards may be appropriate, but then the settlement, the real-time of the merchant receivables, is a great opportunity for a merchant to be able to get those funds faster. But there could be benefits both to the merchant as well as the cardholder to use a credit card. So, I think like the other questions, there's nuance. I think there are use cases there; I think we will see some convergence. I think what we have a fiduciary responsibility for in the banking space is to educate clients on the options in plain language to help businesses, small businesses in particular, make the best decisions possible for their specific use case.

Joey Pizzolato (35:18):

Great. Unless anybody has anything to add,

Jim Colassano (35:23):

The only comment I would make, and it was exactly spot on what Scott said, is what we're talking about. We do not look at any of these payment alternatives as if it's not a death match in terms of who's going to survive. What we're talking about is providing optionality to businesses, providing optionality to consumers so they can make the determination on which one works best for them. So, it's what RTP does. What the instant payment rails do is provide another way for businesses to make payments and leverage their assets, and that sits alongside wires, which is appropriate for certain types of activity, ACH that may be appropriate, and cards. But it is another option that we need to make available to businesses, and in some instances will be the perfect option. So, that's the only thing I would add. It really is enriching the set of options that are available to businesses to use to solve problems.

Allysun Fleming (36:30):

I'd add, if it kind of goes back to what I was saying before, if I was to get a crystal ball, what I predict will likely happen is that we'll start to get much smarter, either directly for small businesses or larger businesses, even any e-comm business, smarter data tools for them to use to maybe offer up real-time discounts or offers to their customers to encourage them to use a particular payment mechanism. But ultimately, choice is really important, and allowing that choice for their end consumer is something they need to do to be competitive. We see it today in a very basic state. If you've ever gone online to make a payment and there's a surcharge that's different, if you're going to use ACH versus a card, it's more punitive today. I think in the future what we'll see is maybe more rewards to encourage that customer behavior, and certainly there are a lot of platforms out there that are trying to do that. I think it's early days, and maybe we need a little bit more maturation. Certainly there's the technology for those models to be pretty effective. I just don't know that all of our e-commerce customers are ready to absorb them yet and integrate them into their own platforms.

Joey Pizzolato (37:44):

Right. Makes sense. This next question sort of piggybacks on that: Does it make sense to have real-time payments at point of sale terminals as an alternative to card payments? Does anybody have an opinion there, or is anybody seeing their small business clients ask for RTP at the point of sale?

Scott Beyer (38:09):

I haven't seen that specific ask from merchants. Obviously, we have a lot of merchants, and I don't know that there's general awareness of the capability, right? Eight years, but in the grand scheme of things, that's pretty new in this space. And you mentioned, Joy, at the onset, which is small businesses don't wake up in the morning thinking about payments. They think about how to run their business, and oftentimes status quo is okay. I think it's on us to educate them, and Jim said it perfectly, or the optionality of what they have and being able to provide value for them. So, I don't see that being asked. I think there's certainly an opportunity. I think where we do see it is at the micro-merchant level, if we think about the local farmer's market, how are they accepting payments as they move from cash with mobile card acceptance, Zelle, other use cases, right? There's definitely opportunities to start introducing these technologies, but I think it's going to be more on us to show that optionality and the benefits to them versus them sort of pulling that from us saying, "I want real-time payment because it's a lower cost or it's immediate." I think it's more on us to educate them on those options.

Allysun Fleming (39:31):

It probably takes a little maturation to get to the point where we have an alias too. If I think about Zelle and the success that we've seen with small businesses in particular using Zelle as a channel to accept payments or originate payments themselves, it's because there's an alias that's pretty easy. They can use a phone number or email address to originate that payment or to request the payment from someone. Today, it does require a routing and an account number, and I don't think that most consumers and most small business customers are super comfortable giving that out freely. So, we'll probably need to see some additional things happen within the network to really have it be a point-of-sale origination channel. I guess that's an opinion, but Jim, I'd be really curious how you respond to that.

Jim Colassano (40:17):

Well, from my standpoint, and I attend a lot of mentoring conferences, so I hear a lot about this topic. Part of the challenge you have when you're talking about point of sale in particular is friction—how quickly you can get people through that checkout. It's hard to beat "tap and pay" and move along. So, one of the challenges, and I know a lot of folks are actually looking at it right now, is how do you get that user experience so you can continue having a frictionless experience at checkout, and also leverage the different types of payment alternatives? So, I think we're a ways away from solving that problem. But I think when you get closer to the consumer actually making a purchase directly in a retail store or with a merchant somewhere, I think that's where the issue of user experience and frictionless experience really starts to come into play, and that's a problem that still needs to be solved.

Joey Pizzolato (41:21):

Great, great. We've got a lot of questions coming in, which is great. That means people are engaged, so I'm just going to keep rolling with them. So, one concern of small businesses is documenting their history of payments. For example, a vendor claims that you didn't pay an invoice from two years ago. What is the best way to save or access the electronic confirmations without printing them out? I would assume that it's a digital record under banking.

Allysun Fleming (41:59):

There are probably variations bank to bank and how each bank solves for that. So, there's probably some variation here. But for all of our electronic transactions, we keep that transaction history, and there are different rules and regs we have to comply with depending on which segment we're talking about. But at least at our institution, that's all available electronically within our repository, and it's pretty easy to pull. In fact, it's one of the best reasons for any customer, regardless of size, to get off of what I call analog payment mechanisms—your checks and your cash—is because the traceability of all of these payments, regardless of the rail, as long as it's electronic, is so much more easy for a customer to pull, both themselves digitally or at any of our banking centers with the relationship managers, et cetera. That data's out there and retained for quite some time.

Joey Pizzolato (42:48):

Thanks. Okay, so this is a good one, and then we're going to hop back to, I want to talk about embedded payments. We are at about the 10-minute mark here, but I think this is appropriate. Can you discuss the impact of disputes on RTP? How does that work? Jim, maybe I'm going to call you out on that one.

Jim Colassano (43:10):

Sure. So, we do not have a dispute management system. All transactions are settled instantaneously. Now, we do have a warranty process that supports our request for payment activity. So, if for some reason a request for payment is issued fraudulently and for some reason is responded to and the payment's made against it, we have a warranty process that will allow the customer to get their money back. But that's specific to the RPF process. In terms of pure disputes, where there's a bona fide relationship between a buyer and a seller, and "I thought I bought a red shirt, but when I opened up the package it was a blue shirt," those types of disputes, we do not have a mechanism within the RTP network to deal with those types of activities. To be blunt, as we start to get closer to point of sale, that is something we're probably going to have to give a little bit more thought to. But the thinking behind our process is, as long as there's a bona fide relationship between a buyer and seller, and the actual payer decides to use the real-time payment rail, knowing that it settles with finality, that's where the transaction closes, unless there's something fraudulent involved in that transaction. So, that's kind of the way we look at it as of right now and what we have in the network as of today.

Joey Pizzolato (44:51):

Right. Thank you. Thank you. Alright, let's talk about embedded finance for a moment. Beyond the core payment capabilities, which we've really sort of talked about, what role do real-time payments play in embedded finance for small businesses? And how do you all see this evolving and creating new opportunities for banks and their small business clients? Allysun, maybe you want to start?

Allysun Fleming (45:19):

Sure. We're bullish here. I'll just tell you I'm very bullish on what I would call generally instant payments or faster payments as kind of the future of how our small business customers will interact with payments generally, whether it's in their accounting platform itself, like a QuickBooks, and us acting behind the scenes as their bank, or whether it's in another platform, like their e-commerce platform, et cetera. The reason I'm bullish about this is it goes back to the simplicity of how they're originated, and it goes back to the simplicity of being able to provide a reference number to help with reconciliation routines, et cetera. I think when you start to interact with a customer's platform, it's API-based generally, and doing things in batch no longer makes any sense. So, we're quite frankly not spending a lot of time or energy on how to do things using ACH and some of the older rails because they were built for a very different environment that wasn't message real-time oriented, versus an instant payment, which is intuitively that way. So, I think it's core, and it's certainly where we're spending a good amount of time and energy, and we continue to innovate in this particular space for that reason.

Joey Pizzolato (46:37):

Right. Scott, anything to add there?

Scott Beyer (46:40):

Yeah, no, I agree with Allysun's comments. Look, I think embedded finance and keeping customers in the application and enabling that where their customer, the third party, is interacting with them doing business, it's a huge opportunity for banks and there's lots of upside. I think then back to the piece about optionality, and this kind of gets back to the last question too, about fraud and controls. Who is the customer in this, and who? The idea of finality and payments that are instantaneous is very advantageous in certain use cases. Jim talked about the customer and the supply chain and knowing that payment and there is finality there, and then being able to embed that in the application where those third parties are interacting with them is incredibly valuable. I think it fragments the payment industry a bit, right? And it allows or requires that banks are nimble and provide that infrastructure for the API integrations, but massive upside in embedded finance, and RTP is certainly a great way to enable that.

Joey Pizzolato (48:04):

Alright, Jim, anything to add?

Jim Colassano (48:07):

No, I think Allysun and Scott did a great job of explaining why the network is the perfect network to be able to leverage when it comes to embedded finance. Quite frankly, the transaction-by-transaction nature, the speed, as well as the fact that there is a response that's received to every single message that goes through, makes it the perfect application to support embedded finance. It was designed from the beginning intentionally that way. So, I am very bullish on that, and I do see that as an area of significant growth across all segments.

Joey Pizzolato (48:43):

Right, right. Alright, so let's just attempt to wrap this up. We've talked about a lot of different things. So, just to reiterate here for you all, what are the primary challenges or barriers that banks face in getting small businesses to adopt RTP? And what sort of strategies have you found that really work? I know we sort of touched on this at the beginning, but I just want to bring it back around full circle here. Scott, maybe you want to kick us off on that one.

Scott Beyer (49:25):

Yeah, actually I think Allysun touched on this earlier, and I think it's a really critical point:

It's the behaviors of small businesses and how they like to interact with their bank are very different, right? It's like the shopper who goes and buys a car off the car lot versus somebody that goes and wants to customize every single aspect of their car and know everything about it and order it. It's the same thing. You've got small businesses who want to understand the mechanics of how money is sent. They want to understand their options, they want to be able to maximize the speed, minimize the fees, and take great pride in being able to do that. Most customers aren't like that, but there are customers that want to be able to do that. Then you've got other customers that just want us to tell them, or ask them, "What are you trying to accomplish? I need it there today." "Okay, this is a great payment rail to do that." They don't care about the name of it, they don't care about what happens behind the scenes. They want to press send and send the money and make sure that the receiver gets it instantaneously. In another case, it may be a limit concern or they may want more controls with regards to fraud and risk. So, I think the biggest piece for us is what the challenge is: How do we help customers and educate customers, but then how do we keep that optionality open for them, for those customers or small businesses that want to know all of the details? That is a hard thing to navigate—to be sort of everything to everybody—but I think it's on us to figure that out for customers, and we're working very hard at doing that.

Joey Pizzolato (51:05):

Great, thanks. And Jim, anything to add there?

Jim Colassano (51:11):

I think Scott covered it well. The only other point that I would make is that we are working not only with our banks to connect into the network and enable the capabilities, but also with the treasury management systems who are also key to being able to process some of these transactions. We work with ERP operators; we work with treasury management systems so that they embed RTP capabilities within their own environments to have it sit alongside a wire or an ACH transaction, to make it easier for the end-to-end process to deal with these transactions. So, it doesn't just stop at the bank account; it goes all the way through to the reporting; it goes all the way through to the initiation processes and fits seamlessly into it. We've been doing that from the beginning of the network, and we continue to do that because they are critical parts of the end-to-end ecosystem.

Joey Pizzolato (52:13):

Great. Great. Thanks. And it looks like we lost Allysun, so that seems like a cue to wrap this up. Oh, she's back.

Allysun Fleming (52:24):

I don't know what happened there. It looked like I was on, but I'm here, and I didn't have anything to add because both of them answered that so well. The one thing I would just say is as an industry, storytelling is important, and we need to continue to share stories of how customers are actually using and are successful using some of the new optionality and have it be in our customer's voice. I think the more that happens, combined with everything else Scott and Jim outlined, I think we'll start to see that adoption over time. It's just, it's new and some people are afraid of it.

Joey Pizzolato (52:57):

That's a great thought to end on. Allysun, Scott, Jim, thanks so much for the wonderful conversation and for joining me here today. For everyone watching at home or from the office, wherever you are, stick around. Our next session will start at 12:55 on how small businesses can use AI, how banks can use AI to improve their interactions with small businesses. So thanks again for joining and have a great day.