Faster Payments, Then & Now

By Adam Steenhard, VP of Corporate Strategy, Dwolla

In 2022, both consumers and businesses want immediate results when it comes to money management. While this sounds obvious, real-time money management technologies have only been utilized by the domestic economy within the last decade. It began in 2015 when companies like Dwolla proposed the concept of building a framework for real-time payments to The Federal Reserve. Two years later, a similar framework became the first new core payments infrastructure in the United States in more than 40 years.

During the COVID-19 pandemic, the acceleration of technology brought an increase in demand for both commercial and personal real-time payments. Individuals wanted to complete their transactions immediately—some due to emergencies and others just for convenience-sake—for quicker access to their money. And businesses struggling with the recession brought on by the pandemic needed to improve cash flow and create efficiencies. Sending and receiving funds with only a moment’s notice is becoming an expectation and a necessity—giving Americans a safety net amidst so much uncertainty in the world.

These rapid payment practices are known to the industry as faster payments. According to new surveys conducted by Federal Reserve Banks, faster payments are improving satisfaction rates for both consumers and companies. About 70% of U.S. consumers say that faster payment capabilities are important satisfaction drivers. To keep those numbers growing, it is important to discuss the evolution of faster payments and how the financial sector can continue moving towards these automated innovations.

Faster Payments Then

The financial sector of the U.S. marks the beginning of the faster payments revolution with the launch of The Cleaning House’s RTP® Network. In November 2017, financial institutions in the United States were able to offer their customers a secure platform that cleared and settled transactions in real-time. This gave financial institutions and payment solution companies, like Dwolla, the ability to unlock the capabilities of the banking infrastructure and offer more than just ACH network initiatives.

The origins of faster payments gave users better relationships with their banks. It also gave businesses the ability to align both RTP and ACH processes for maximum productivity and cash flow. Utilizing the RTP network in its early stages meant experiencing the immediacy of card networks and the security of a good funds model.

Faster Payments Now

Today, the faster payments movement has gone global. There are now 54 countries participating in their RTP processes and the variety of faster payment options has increased as well–Same Day ACH, RTP, Push-to-Debit, and Wire Transfers:

• Same-Day ACH: Rather than waiting the average 4-5 banking days, businesses can send users funds within the same business day. Companies can send up to $1 million using specific API platforms.
• RTP: RTP processes account-to-account transfers through its RTP network Operator, The Clearing House. Fund availability happens in real-time.
• Push-to-Debit: New technologies allow businesses to send payouts to a user’s debit card in minutes. This activity is monitored, and sensitive data is protected by card tokenization.
• Wire Transfers: Organizations can transfer funds by wire instantaneously.

These faster payment options allow companies and financial institutions to combine traditional ACH practices with the newest innovations around real-time transfers. Among individuals and businesses getting their money more quickly or making their payments more immediate, this technology also improves cost-efficiency and productivity. Once the power of faster payments is tapped into, it is hard to go back to traditional strategies.

One of the main progressions we are seeing in the faster payments space is its growing use in B2B transactions. Over the last few years, platforms like Venmo and Square Cash have allowed consumers to engage in real-time transfers with each other through debit and card networks. Businesses are just now finding their own footing using these new technologies to get as close to a real-time payment experience at a more affordable cost. And while B2B transactions typically involve large sums of money, transaction costs for expedient processing that are based on fees tied to a percentage of the overall sum, meaning vendors had to absorb exorbitant fees for rush transactions, eat into their revenue. Faster options using account-to-account transfers has been a game-changer for B2B payments.

With today’s combined ACH/RTP strategies, companies can skip both wait times and additional costs. The result? Cash flow increases, products are purchased faster, and everyday operations become more efficient. And beyond that, fast payments also make payment reversals less likely due to credit pushes, which require that sufficient funds are in a payer’s account before the transferring process occurs.

The Future of Faster Payments

The new normal means expanding both the commercial and personal use of faster payments. As we move into this new iteration of banking, attention spans are short, and expectations are high. We are all becoming accustomed to next-day delivery on packages, Door Dash in minutesVenmo payments that happen in seconds, and streaming television services, where we can watch whatever we want instantaneously. So it’s no surprise that expectations for payments in the commercial space are following the trend of immediacy.

For businesses to compete, their adoption of faster payment experiences is necessary. Looking ahead, we see our faster payment innovations moving to the forefront of the American economy and, hopefully, the world.

Author Bio:

Adam Steenhard is the Vice President of Corporate Strategy at Dwolla. In his role, Adam cultivates innovation into clearly defined business strategies and successful implementations. With more than 15 years in financial services, he has payments innovation at the forefront which is evident in his leadership on Dwolla’s Faster Payment Proposal and contributions to Mojaloop alongside the Bill & Melinda Gates Foundation. Prior to joining Dwolla, spent several years leading various product and engineering efforts at Nationwide Insurance. Adam is a graduate from the University of Northern Iowa in Management of Information Systems and holds an MBA from The University of Iowa.