The Clearing House and Real-Time Payments

The game is afoot! The announcement from The Clearing House regarding real-time payments last week came as no surprise – indeed, it felt inevitable. The Federal Reserves’ significant work around the topic, and their clear determination that it would happen, seems a clear indication that they wouldn’t rest until it was delivered. The question then is how will it be delivered. The Feds conclusion from its consultation was that new infrastructure would be required, rather than re-using existing infrastructure. This posed two questions 1) would the Fed build it themselves? Or 2) do they would expect someone else to build it, and how would that actually happen? We dismissed question 1 pretty quickly – it would have created a monopoly (just about the only in US payments), and the experience of the Fed Same Day service perhaps highlighted they weren’t perhaps best placed to deliver. Who does that leave? Having already nailed their flag to the mast with their Same-Day proposal, and stating that they believed that this was adequately fast and would complement a real-time solution, Nacha was unlikely (at least at this juncture) to put themselves forward. Some seem to have considered the Fed comment about not re-using debit card infrastructure as something of a swipe at PayNet. Given the number of banks already connected to it, and the work around the rules and business model, we think that this rather underestimates what PayNet can do. CME look to have thrown their hat in the ring, with their investment in Dwolla. Whilst CME claim Dwolla is real-time, it isn’t as the chart on Dwolla’s own website even says itself. Yes, in some instances, but equally, it can take up to 4 days. Unless, of course, there is exciting news coming from Dwolla soon….! There are a few other names being mentioned as waiting in the wings – we’ve certainly heard lots of rumours about who else is preparing to announce, though have seen no hard evidence so far. So does this mean that this is a slam dunk for The Clearing House? Not quite. First, to the point around monopolies, we don’t believe the Fed will be satisfied with just one infrastructure, unless it also has a significant shift in policy in mind. Secondly, the Clearing House proposal is very high level. Whilst we’re not saying it won’t be suitable, we’ve yet to see enough to be confident that it will be. The Clearing House has a strong track record in this regard, so we think its just a timing issue. Thirdly, as the proverb suggests, whilst you can lead the horse to water, you can’t necessarily make it drink. We’d define success in this instance as wide-spread uptake. We’re less clear as to how that will happen - will Clearing House Members be mandated to use? Incentivised? As my recent report on real-time payments sets out, the success is in large dependent on how well it is positioned in relation to other payment choices, and how well it is product managed. One thing is for certain though. This won’t be my last blog on the topic – there will be plenty more to happen yet!