Real-time payments may be most visibly changing the face of how employees — including gig workers — get paid.
But as Steve Ledford, senior vice president of products and strategy at The Clearing House (TCH), told Karen Webster, the flexibility and near-instant settlement and reconciliation will transform all sorts of payments — including the hundreds of trillions of dollars that cross borders up and down supply chains.
As he said, TCH is continuing to see “very good growth” in real-time payments, especially on a month-to-month basis. Merchants and other businesses are finding benefits in terms of expense control (and worker retention), and new efficiencies in how they pay one another.
To help pave the way a bit — a form of putting one’s money where their proverbial mouth is — TCH has been paying its suppliers, landlords and other billers with real-time payments. Perhaps call it an education, in real time (pun intended).
“It’s almost like grad school on how commerce actually gets done in the U.S.,” said Ledford.
The Use Cases Proliferate
Against that backdrop, the use of real-time payments in payroll “has taken off like a rocket,” Ledford said. A significant number of workers are receiving their wages on demand through real-time payments.
Perhaps not surprisingly, many of those workers are part of the gig economy. But accelerated payroll is also catching on with workers who are on a salaried schedule, noted Ledford. When it comes to getting those firms on board with paying wages on demand, gaining more traction depends on something he termed “tightening up the window” between when employers have to fund their employees — and when they can.
For the business striving to pay its workers on demand, that capability is tied to when cash and payments from sales and other top-line activities hit their own accounts. As Ledford noted, merchant acquirers are ramping up the speeds at which funds settle in merchant accounts as firms tap into real-time networks. “Even if you’re talking about only completely settled funds, those would be made available pretty much immediately instead of having that day or so lag, and then the weekend lag as well,” he said.
Payroll is ground zero for real-time payments — where they started, in fact. We all would like to be able to cover expenses as they arise — especially those emergencies that pop up and don’t conform to the two-week pay cycle.
As PYMNTS’ research has shown, more than half of consumers live paycheck to paycheck.
B2B is one emerging use case that has not been a massive contributor to the real-time payments landscape — yet. But it’s just a matter of time, said Ledford, before B2B payments done instantly will move beyond the confines of domestic infrastructure and rails and will improve cross-border commerce. It’s common knowledge that where late payments are rampant, few firms adhere to net term agreements, which has negative ripple effects on cash flow up and down supply chains.
There is urgency for more flexibility in how enterprises pay one another, especially amid the pandemic. In a March announcement, the CHIPS network from TCH said it now accepts new payment messages as late as 6 p.m. Eastern Time, an hour later than had been seen previously — which helps financial institutions (FIs) manage liquidity more efficiently.
Increasingly, he said, modernized treasury overhauls — courtesy of accounts receivable (AR) and accounts payable (AP) solutions providers who want to offer real-time payments functionality as part of a suite that includes same-day ACH and other choices — are getting ISO 20022 and enhanced messaging linked to firms’ ERP systems. Early adopters within B2B are rooted within the logistics industry or specialize in services. These, and other firms, are making real-time payments one of the mechanisms they have available to make payments — and, according to Ledford, these payments are integrated into the overall flow of transactions so they help automatically reconcile invoices, in just one example.
“It’s not just ‘I can hit a button and make a payment, but it’s ingrained into the way I do accounts payable,’” said Ledford. “That’s a big deal. We’re looking forward to much more penetration in small businesses,” he added.
And it is those smaller firms that can help light the kindling under real-time payments, he said, because senders and receivers — not just banks — need to be on board when it comes to B2B and vendor payments. As Ledford noted, the executives at smaller companies will typically check their cash accounts and reconciliation activities several times a day, as ACH and other batch payment windows are staggered throughout the day.
Getting more comfortable with real-time payments might (for now) entail senders ringing up or emailing a “prod” to receivers that the payment has been sent and settled.
“Until it’s actually logged on the books as ‘receivable satisfied,’ you still haven’t finished the job, and that’s the kind of thing that needs to be worked on,” said Ledford.