Instant payment adoption: Are banks future-proofing or self-limiting?
The Clearing House (TCH) has just hit another monumental real-time payments milestone—one that greatly benefits financial institutions (FIs).
On February 10, BNY Mellon announced that it had successfully transmitted USD$10 million instantaneously over TCH’s RTP® Network. The transaction was the first of that value to flow over the RTP rails since the limit increased the day prior and was the product of an inter-company liquidity management payment. According to TCH, this transaction demonstrated, “new opportunities for businesses to move money faster, optimize cash flow, and streamline financial operations.”
While a boon for businesses looking to manage liquidity and cashflow, many FIs may be left wondering how limits over $1 million (the previous threshold for RTP transactions) can benefit their institutions and customers/members. What does this large-value limit mean for FIs of all sizes?
The high-value payoff
The quick answer: Higher transaction limits create new opportunities, regardless of your institution’s size. While not every payment will reach $10 million, opening up RTP to transactions greater than $1 million makes a significant difference for FIs in several ways, including:
1. New revenue-generating use cases. While not every FI has corporate clients ready to send $10 million at a time, all FIs can benefit from products and payment services that enhance their portfolio and provide competitive solutions. With RTP as a value-added service, FIs can stand to benefit from it in use cases including:
Real Estate
The total dollar volume of commercial real estate transactions was $647 billion in 2023, and today, over 90% of real estate transactions include a digital component. In addition, 8.5% of homes in the U.S. are now valued at $1 million or more, with a whopping 43.7% of luxury home buyers paying cash at settlement. Time-sensitive property closings, large lease security deposits, commercial property acquisitions, and property settlement payments all benefit from RTP’s immediate payment guarantee. FIs that offer RTP will have a competitive edge in this industry.
Treasury Management
Whether in large cash transfers between accounts, cross-subsidiary funding, or time-sensitive liquidity management, with RTP, FIs can build treasury management products to address customer/member needs. In addition, FIs can offer RTP solutions to support business operational needs, including high-value supplier payments, bulk payroll processing for large corporations, and emergency working capital transfers, as part of their treasury management package. In short, FIs who tailor RTP products to emerging business needs will benefit from the product.
Merger & Acquisition Support
In another use case that responds to business needs, FIs can leverage RTP for deal-closing payments, earnest money deposits, and time-critical escrow funding for businesses working their way through mergers and acquisitions.
Trade Finance
For FIs with business customers/members who work internationally, RTP can support those efforts seamlessly. Consider its potential with large international trade settlements, letters of credit funding, and just-in-time inventory financing.
Investment Activities
From both a consumer and business standpoint, utilizing RTP for investment efforts brings a certainty and immediacy to the transaction. Securities settlement, investment fund subscriptions/redemptions, and margin calls represent activities that can benefit from the $10 million threshold as well as the instant clarity an RTP payment provides.
2. Operational efficiencies and overhead reduction. Beyond the direct transactional benefits RTP engenders, it also creates internal efficiencies for businesses. Immediate payment and settlement automatically establish stronger cash flow management, a reduced reliance on wires, and a 24/7/365 payment capability. Having RTP as a solution for each of these areas reduces costs, streamlines operations, and supports a better operational experience.
3. Lowered institutional risk. Large-dollar payments historically have been handled by wire transfers and checks, and while these payments get the job done, their lack of transparency and immediacy introduces challenges. For the sending FI, RTP’s instant nature reduces settlement risk through its certainty of completion. For the receiving FI, instant availability of large sums and irrevocability of payment reduce settlement risk. Leveraging RTP for high-value payments is a win-win for both sides of the transaction, strengthening risk mitigation.
While a $10 million RTP transaction may not be an everyday occurrence for most FIs, payments above $1 million very much could be. Those FIs who are equipped with RTP can capitalize on a wide range of benefits and be first to market with tools and services to support new customer/member demands. And for your FI, that may just be history in the making.
For more information on how you can seamlessly capitalize on opportunities with real-time and instant payments, reach out to Finzly payments experts.
