Clearing House Sets Growth Strategies for RTP Instant Payments

As David Watson, president and CEO of The Clearing House describes it, the early years of its Real-Time Payments Network passed in an atmosphere of “Kevin Costner, ‘If you build it, they will come. We’ll take any payment, every payment’.”

In Costner’s “Field of Dreams,” the ghosts of the Chicago White Sox, besmirched by the “Black Sox” gambling scandal, arrive after his character builds a baseball diamond in a cornfield. RTP, introduced in late 2017, the first new payments settlement system to come along in decades, didn’t prove so magnetic at first.

Watson joined The Clearing House — owned by 22 major U.S. banks — in early 2023. Soon after the future of RTP came before a concerned TCH board. The Federal Reserve was on the verge of introducing its own instant payments network, FedNow, and RTP’s usage was looking anemic compared to the significant role played by instant payments in other countries. With FedNow on the horizon, “a lot of people had sat back and waited,” said Watson. As a country, he said, the U.S. lost a few years of growth in instant payments.

“We took a long, hard look at RTP and said, ‘Look, this has not really performed as we thought. Is it really needed? Should we turn it off?’,” said Watson. “‘Or do we actually believe in it, and should we double down?'”

Continued Watson: “The decision from the CEOs on the board was to double down.”

Fast forward to today, and the doubling down seems to have paid off. As the chart below shows, quarterly payments made via RTP have been increasing both in number of transactions and in dollars. Watson also indicated that “since FedNow has been launched” — in the summer of 2023 — “our own volumes have kind of exploded in parallel.” He’s hoping that October will end with RTP having reached daily volume of 1 million payments. In July 2024 RTP marked its first $1 billion day.

Even as volume has grown, Watson told reporters during a briefing that volume is still “very small compared to other countries and compared to other payment types.” But Watson hopes a shift in strategy to a more proactive approach than the Costner method will continue to bear more fruit even as TCH contemplates the expansion of RTP.

Confronting a Financial Marketing Challenge for Instant Payments

As Watson explained, TCH plays a different role in payments than other intra-industry participants.

Mastercard and Visa, for example, produce not only major product development for card issuers and other payment providers, but also provide the marketing muscle behind two very visible payments brands. Early Warning Services, a consortium of seven major banks, promotes the Zelle payment brand on its own, while banks and credit unions offering Zelle also do their own marketing. More recently, as Early Warning’s Paze has amped up its own promotion, both the company and participating institutions have been marketing the ecommerce digital wallet. Meanwhile, PayPal hired comedian Will Ferrell to be the face of its “PayPal Everywhere” campaign.

By contrast, The Clearing House has been around for 117 years with roots that go back to clearing checks manually at a central building in Manhattan. It has typically not pushed itself into the public eye.

“We are the plumbing behind what happens,” explained Watson. “So it’s not like we are a brand that is on the consumer landscape.”

So you won’t see a TCH marketing campaign to sell consumers on RTP, nor even something like an “RTP inside” motif to promote that a longstanding organization stands behind the new rails. TCH officials say that the TCH board considered this option at length and eventually rejected it as not being the organization’s role.

Watson said it’s considered more important to stress the RTP brand to banks and credit unions designing services using the rails.

“What I don’t want to do is put an RTP brand out in the market that confuses people,” says Watson. The Clearing House can be seen as a wholesaler — neither consumers nor businesses deal directly with it for payment services.

The Role Governments Play in Instant Payment Adoption Here and Overseas

A key factor distinguishing the U.S. instant payments experience is that usage of the service on both the TCH RTP and the Fed’s FedNow are voluntary. No bank or credit unions must use either system (which at present aren’t compatible technologically and can’t interoperate directly).

In other countries, where instant payments enjoyed rapid growth, government policies often added fuel. “They all tended to mandate connectivity in the first two to three years,” explains Watson. (Watson came to TCH from SWIFT, after spending many years in payments posts at Deutsche Bank.)

In India, for example, the government enabled digital identity nationwide and also eliminated lower-denomination rupee notes. Both moves helped stimulate adoption of instant payments.

“Obviously we don’t have those same triggers,” said Watson. “So both TCH and FedNow have to go on a journey of convincing people that there are market problems to be solved through instant payments.”

“I actually think that’s a better approach,” Watson added. “But it takes longer than just mandating that everyone connect.”

Watson also noted that no country broke even on the costs of implementing instant payments platforms in their first ten years. “And we’re only in year seven,” he said. In time, he said, both RTP and FedNow could make instant payments so ubiquitous that the government mandates adoption by stragglers — automated clearinghouse adoption followed this path many years ago. But U.S. instant payments hasn’t come to that point yet.

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Finding Use Cases to Ignite Continuing Growth for Instant Payments

“We’ve built the superfast railway and we’ve got the superfast trains,” said Watson. “How do we actually sell this to people to use as a mode of transport instead of taking the slow train, or driving the car, or walking?”

Instant payments has a bit of an image problem in the U.S., not because of the service itself, but because many consumers think they already have it.

Payment methods like Venmo and Zelle can make it appear as if money leaves the consumer’s account immediately. What’s going on behind the scenes may or may not be instant. For the consumer, said Watson, it’s about the user experience.

TCH realized that the best way to get RTP adoption moving was to devise and promote use cases that suit the technology. “People don’t ask for faster payments, but what they do ask for is the net result,” he explained. Often the desire is not so much the actual speed of the settlement, but confirmation of it, he added.

“The end user doesn’t need to know what the plumbing is,” said Watson, which helps explain the decision not to make RTP a brand consumers see. (For business payments, some banks mention RTP — “We leave it up to our customers to decide how much they want our brand in it.”)

Key to the use cases is looking for pain points among consumers and businesses in making and receiving payments, said Watson. (The TCH site features a gallery of use cases, with illustrative examples.)

On the consumer side, people who want to close immediately on a home purchase or to be able to deliver loan funds to a car dealer so they can drive their new vehicle right off the lot are two such use cases. Paying bills (such as credit card) instantly is another, especially when left until the last moment.

Another is payments for gig workers and freelance contractors who aren’t salaried. The website designer who wants to be paid before they finish and turn a site on for public use is one example — they want the leverage, said Watson. People who do shift work that want to be paid when they get home that day are another use case.

On the business side, insurance payments are a strong candidate.

Thus far, RTP carries “a lot of low-value payments,” said Watson. “It’s not replacing the big bank wire sort of monetary movements or the securities market payments.” He says the average payment value fluctuates, but hovers around $550-$600, on average.

‘Request for Payment’ Transactions Await Mass Launch

Something that will help accelerate growth in RTP usage is expansion of how payments are initiated. For the most part, RTP payments presently are “push payments.” That is, payments that are initiated by the person making the payment. There aren’t yet “pull payments” in RTP, with parties authorized to charge a consumer for a monthly bill.

Another payment option is the “request for payment,” a longstanding mode that could become generally available for RTP. A request for payment is essentially presentment of a bill that a vendor wants to have paid. The payer remains in control, deciding whether or not to OK a payment.

“We’ve launched this and are live with it with some banks,” said Watson, “but we haven’t put it into mass usage yet.” When the launch was announced in August 2023 eight large banks as well as a couple of smaller banks were among the first to offer RFP on RTP. The three use cases authorized at the time included consumer bill payment, business-to-business payment, and account-to-account payment, such as from a bank account to a brokerage account to facilitate trades.

Looking Down the ‘Superfast Railway’

Meanwhile, Watson has goals that are near and others further down the road. Financial institution enrollment in RTP continues, with 735 banks and credit unions taking part — 90% of them under $10 billion in assets. Already, with the institutions now on board, seven out of ten U.S. demand deposit accounts can receive RTP payments.

At present, RTP is also strictly a domestic payment method. Watson would like to go international.

“Potentially connecting the RTP Network to its cousins, brothers and sisters in other countries would enable flow of low-value payments,” said Watson, “in a very different, and instant, manner versus how they are done today.”