What’s Next in Bank-to-Bank Real Time Payments

Mobile phones, immediate payments, and bank-level security. Will the US banking industry’s full-throttle launch into the digital payments market in 2017 change the way consumers pay bills, buy groceries, and cover their share of the dinner check? Whether or not the Zelle Network—more on this later—becomes more popular than its current alternatives, banks are making a significant leap forward that will surely impact the way individuals and even businesses make payments in the future. Let’s take a look at the impact they’re making today.

Banks Explore Real-Time Payment Solutions

We looked at the various ways real-time payments have been pursued in the US in Interest in Faster Payments Drives Electronic Payment Adoption. Traditional banks have been zealously innovating to update their capabilities and services to reflect how their customers (individuals first, then businesses) want to manage their finances today—and it’s increasingly through digital channels. The challenge has been finding solutions that are at once secure, interoperable, and market-ready…and there has been nothing “easy” about it.

As explained by Paul Schaus in the AmericanBanker.com article First Step Toward Real-Time Payments: Clear Up the Confusion, banks’ payments operations and technology infrastructures are rooted in slow-moving batch transaction processing. Most institutions are not set up to instantly clear transactions through a centralized real-time payments system, which requires a series of fast sender/receiver authentications and account validations, funds availability checks, and money transfers.

Achieving these real-time capabilities has become a group effort, and has accelerated progress. The bank consortium, Early Warning Services, has been operating clearXchange, a digital payments service that allows individuals to send money immediately by email and text message to anyone with a US bank account–and it’s about to be taken to the next level.

The Banking Industry’s Answer to Venmo

In 2017, Zelle will replace clearXchange. Through the Zelle network of leading financial institutions, people will be able to move money faster and more securely than the alternatives, like the widely popular Venmo. While it has no social component like Venmo, Zelle will make it easy for users to pay bills or make person-to-person payments through their phones—even to friends who use a different banking system, as the technology is compatible among multiple banking systems.

For more on Venmo, read In-Store Payments Are About to Get Social.

The initial set of 19 participating financial institutions include Ally Bank, Bank of America Corp, Bank of the West, BB&T, BECU, Capital One Financial Corp, FirstBank, First Tech Federal Credit Union, JPMorgan Chase & Co, U.S. Bancorp, and Wells Fargo & Co. As explained in Fortune.com, banks and credit unions have a large base of customers, and “this is their way to bring more than 100 million (of them) into Zelle without disrupting people who already use other ways to send money with phones and computers.” Zelle will be available as a standalone app as well as a tool that’s embedded in a bank’s website or app.

The big selling point is that because this is a bank service, it’s perceived to be safer and more secure than other digital payment solutions. According to PYMNTS.com, Zelle leverages Early Warning’s authentication technology, meaning payments are monitored across 14 risk moments and about 1,000 authentication points that include “what device the consumer is using, how often the consumer sends money, who the consumer normally sends to, how much they normally send—and whether or not these patterns are not only consistent with each other, but also consistent with how most consumers use the product.”

More Changes Ahead

For all the promises of Zelle, Banks could—and may, ultimately—take a different digital payments approach using the blockchain. This distributed (and decentralized) ledger technology can process and validate transactions more cost-effectively and in real-time. But as discussed by Paul Schaus in the AmericanBanker.com article, implementing “a nationwide real-time payments system based on a distributed ledger, banks and regulators would need to agree on how transactions would be validated and who would validate them…and determine what information about individual transactions they want to share in the transaction message that gets sent for validation and how that data will be stored securely.”

So, “getting there” through blockchain technology will take some more development time. And, perhaps, it needs to earn more trust among decision-makers and consumers. PYMNTS.com’s For Banks, Tech As Threat And Savior quotes Entryless CEO, Mike Galarza, on the topic of trust in the blockchain: “Even with bitcoin…and the transactions that are not dependent on currencies or backing of a central government (that ensures money is legal tender)—‘there’s not enough trust’ to embrace those payments alternatives wholeheartedly.”

For now, Zelle is the chosen standard among the participating banks for digital payments. We will report on developments and trends related to this banking industry innovation once the technology is deployed into the marketplace—and as competing solutions (and technologies) respond.

Explore this related content:

Will Blockchain Technology Power the Future of Payments?

Social Media and P2P Payments: A Brief Overview

U.S. Real Time Payments: Full Steam Ahead?