How Instant Payments Can Improve Money Transfers for Banks
A U.S. Bank digital payments leader says banks and credit unions that have been hanging back should consider how real-time payments integration can streamline account-to-account transfers for consumers.
By Raman Kumar, U.S. Bank
One of the core expectations of modern digital banking is to provide frictionless money movement between accounts at two different financial institutions. Nowadays, customers expect the most convenient and fastest delivery options for money transfers that provide real-time funds access.
Let’s examine real-time payments (RTP) applications to account-to-account transfer use cases and how banks may get the most out of their RTP investment.
A2A Transfers and Real-time Payments
A2A transfers are a DIY digital banking functionality that moves funds between two accounts owned by the same individual across two financial institutions. A2A transfer capabilities and experience can provide more flexibility than other money movement offerings such as wire transfers or checks. They can be used for funds "pull" or "push" use cases involving bank-to-bank, broker-dealer, or wallet account transfers. A robust A2A transfer feature improves customer experience and is an effective tool for increasing deposits and consumer stickiness for banks.
With the newer real-time payment networks in the U.S., including The Clearing House’s Real-Time Payments (TCH-RTP) and the Federal Reserve’s FedNow services, there is a huge opportunity to further enhance the A2A transfer experience with 24/7 always-on instant transfer options that provide real-time access of funds.
Read more: How U.S. Instant Payments Can Catch Up to the Rest of the World
ACH A2A transfers and limitations
Most U.S. banks’ current A2A transfers are based on the ACH (automated clearing house) electronic payments network. While ACH A2A transfers are a better alternative than legacy paper checks, etc., they use standard delivery which typically takes one to three business days to move the funds.
Further, the service is only available during certain hours on the business days. If you submit a transfer on Friday evening, you may not see the funds in the destination account until the middle of the next week. If you are transferring a large amount, you may not have access to the funds for several days, causing a loss of fund usability and interest income.
For financial institutions, this may also result in customer and operation inquiries due to the prolonged nature of these A2A transfers.
For example, ACH A2A transfers debit (pull use case) doesn’t require explicit approval from the debtor account owner, just the knowledge of the account credentials, which may cause unauthorized debit returns and fraud risk involving potential claim from the funding institution that the customer didn’t authorize the debit.
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The other associated issue is the potential for ACH non-sufficient funds (NSF) returns, e.g., not enough money in the funding account to cover the initial funding request, causing unsuccessful fund transfers and potential fees for customers.
Real-time Payments Integration to Consumer A2A Transfers Use Cases
Putting Real-time Payments into Action to Ignite A2A Transfers
Instant A2A transfer using real-time payments is likely to become a standard feature with consumers demanding fund access in real-time and always available.
In a recent Insider Intelligence survey "real-time external transfers" are among the top five most in-demand U.S. mobile banking features.
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With the TCH-RTP network already capable of reaching more than 60% of U.S. DDA accounts and adoption of the FedNow network increasing, banks and their customers would be generously rewarded with implementations to enable real-time payments in A2A transfer use cases.