Will Realtime Payments Bring Real Money for Banks?

Photo: Canstockphoto/gina_sandersShould consumers and businesses pay for realtime payments or not?

This difference of opinion is apparently creating some “discord” in the clearXchange network between the first two active members: U.S. Bank and Bank of America.

Speaking to investors this morning, U.S. Bank CEO Richard K. Davis spoke on the importance of payments to banks, and the competition with nonbanks. From Seeking Alpha:

The clearXchange and the EWS [Early Warning System] partnership, which you’ve read about with some of the large banks, has been a important step to get us into a combined effort so that we can all work on something that banks have controlled for years, which is the payments network and the ACH system. So we’re making progress. And I think as an industry, you’d be proud that we haven’t lost our position. We haven’t given it up and we are not going to sit idly by while nonbanks come in and take over the position.

Calling the new initiatives a “peek into the future,” Davis noted that appetite for realtime and things like blockchain is higher for consumers than businesses, which tend to be more conservative by their nature.

The issue I want to bring before you, though, and our investors is, whether you get paid for this? And there’s already a bit of a discord between us and the other bank that came out with one of the real-time payments, P2P, where we are charging for it and they are not. And so the issue we have to ask ourselves is, will consumers and eventually businesses pay for a circumstance that they don’t have value for today? Will they pay it for a time? Amazon members… will pay for Prime to have certain privileges and speed. They’ll do it there, so we are hoping they will do it here in the payments world.

We have to make sure that the business of banking doesn’t become a utility in the minds of the consumers where they expect everything to come without a value price to it. And we are hoping that we’ll be able to help set the standard for that. But that’s my hope. And then there’ll be plenty more opportunities to hear what consumers and the businesses want delivered to them. And frankly, I think we’ll surprise them. But it’s been so long, this whole paradigm of overnight settlement, closed on weekends and all of that. I think they will be quite pleased to see some of the progress we are making.

Davis and COO Andrew Cecere went on to discuss plans for faster payments for businesses. U.S. Bank will likely announce developments in payments on the commercial side later this year, Cecere said.

Same-day settlement of ACH transactions came up as well, and Cecere commented that the same-day settlement essentially allows for an extra window during the day. Davis expanded on this idea and returned to the theme of the benefit (and therefore cost) of faster payments:

Give yourself an example of, you are a state or whatever, and in the middle of the day, you realize you made a mistake on one of your payrolls to your state employees and you need to remedy that before tomorrow morning. There are opportunities now to get in the middle of the payment system and do something midday. But I think that should have a cost to it, because that’s a convenience that was otherwise not present for value of services added. So I think we will find some, both competitive benefits and some financial benefits, but it has a lot to do with how the industry performs in the next, probably three to four quarters as we start rolling things out.

We reached out to Bank of America for comment and will update this post if appropriate.

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