Impact of the RTP® network and the FedNow® service on card fees

In a recent webinar, Payments in 2024: What You Need to Know, featuring insights from Erika Baumann, Director of Commercial Banking & Payments Practice at Datos Insights, and Mark Majeske, Senior Vice President of Faster Payments at Alacriti. The discussion provided a comprehensive overview of the anticipated trends and innovations set to shape the payments sector in 2024. Read on to discover the answers to financial institution decision-makers’ questions during the webinar.

Impact of the RTP^® network and the FedNow^® service on card fees

What impact do we see on card fees, given the adoption of RTP and FedNow?

Baumann noted, “It’s too soon to see a significant impact on card fees due to RTP and FedNow. Financial institutions are concerned about the potential cannibalization of card, ACH, and wire volumes. However, the current volumes haven’t significantly affected these fees.” She emphasized the importance of viewing the total relationship value with businesses, including their card business, deposits, and transactions.

Mark Majeske added, “We haven’t observed any notable effects on card fees yet. As adoption and volume increase over the next few years, we may see some impact.”

Monetizing instant payments

How are financial institutions monetizing instant payments? What are you seeing as the different pricing models?

Majeske shared his perspective. “Monetization is crucial. Instant payments offer value due to their speed and 24/7 availability, justifying a fee. Some institutions charge for instant payments, recognizing it as a premium service. It’s important to charge market rates rather than compensating for lost revenue from other products.”

Baumann agreed but offered a word of caution: “While monetizing instant payments is important, it’s crucial to balance fees to maintain competitiveness and not deter usage. Financial institutions with strategic pricing and rollout plans see higher adoption rates.”

Baumann also shared what she’s been hearing from financial institutions. “I have some FIs that say I’m getting $15 per wire or $20 per wire; I need to make up for that and charge more for faster payments. When I ask businesses why they are not using real-time payments at their institution, I get a list of reasons, but one of them I’ve noticed at financial institutions that do not have as strategic of a rollout with their pricing and their total stickiness of how they’re going to maintain their portfolio and their market share.”

Choosing between FedNow and RTP

Which rail are people starting with first—FedNow or The Clearing House—and what are some considerations with that decision?

“Institutions are choosing both FedNow and RTP due to their similar features. Implementing both simultaneously is cost-effective and operationally efficient. It’s about addressing customer needs and solving problems effectively,” Majeske observed. “When you look at the integration effort, like if you are a customer of ours, if you’re going to bother to implement something, why not do both at the same time? The incremental cost of doing so is very, very small.”

Baumann elaborated, “The majority of the volume is still running through the RTP network, but institutions are adopting the FedNow Service as well. Each rail has its challenges, but offering both ensures comprehensive coverage.”

Request for payment and fraud solutions

How does Request for Payment work for Receive-only FIs?

“Request for Payment (RfP) is still developing. It requires Send capability, making it less suitable for Receive-only institutions at this stage,” Majeske remarked.

Baumann also weighed in. “You have to have the message types enabled so that the businesses can send that Request for Payment, get information back, and exchange those messages back and forth. I do agree that we’re not at an inflection point in the market yet, but there’s an opportunity there. I’m having a lot of FIs and the non-FIs talking to me about next-generation bill pay and what RfP means in optimizing this. So while we might not see the maturation for another 12 months or so, what we will see is financial institutions taking advantage of the earlier adopter advantage.”

The topic of fraud prevention in real-time payments also came up. “We are developing real-time fraud solutions, recognizing the importance of integrated fraud prevention in instant payments,” said Majeske.

Addressing ACH cannibalism

What amount of cannibalism are you seeing from ACH?

Baumann reframed the issue. “Rather than cannibalism, we see strategic shifts in payment volumes. ACH growth is slowing but not declining. New economy markets favor more efficient payment methods like RTP and FedNow. If an FI is seeing some of their volume shift, that means that your clients are optimizing their end-to-end payment strategy. And that’s actually a good thing. We have not seen a decrease in ACH volumes, but we have seen a slowing growth trajectory when we go out to businesses and say, what have you used? Then I ask them, what is your projected growth rate for each one of these methods that you’ve used in the last 12 months and the continuing 12 months? ACH is much lower. It’s actually the lowest on the growth curve of the anticipated aggressive growth.”

Majeske added, “It’s a natural shift based on customer need. Instant payments provide 24/7 capability, which ACH and wire transfers can’t offer.”

Instant payments for B2B and B2C

What is the breakdown for instant payments of B2B versus B2C? For B2B, what type of relationship or contract is expected before moving a vendor to instant payments?

“The use cases, just like any other technology we see, really start in the consumer realm and leak up to the business side. So, the expectations for faster payments in the business world started on the P2P side. It started with the Venmos and the Cash Apps answered then by Zelle from the financial institutions, which then obviously Zelle small business, which used to not be actually real-time. Now it is, but it was a handshake between banks. It’s the financial institution’s way of inserting themselves in combating some of the lost deposits into those digital wallets. It then moves upstream, so it’s less about the percentage and more about how is that mentality and that shift changing. If you have payment terms with, or if a business has payment terms with, an established business partner, they probably (unless those terms need to be revised) don’t need to re-look at that.

Where it becomes important is I’m working on efficiencies, I’m working on strengthening my relationships, and I wanna make the most of my liquidity. So I don’t want to pay two days from now and see when that clears or pay yesterday. I want to pay at the exact moment that this other important impending payment has come in. So the B2B marketplace is taking lessons from the B2C and the P2P marketplace and utilizing faster payments as it makes sense to have more efficient data, better market relationships, not necessarily to displace processes that are already working really well,” explained Baumann.

Healthcare industry adoption of payment technology

Do you view the healthcare industry as a slow adopter of payment technology?

“Healthcare payments tend to lag, presenting significant market opportunities. Engaging with healthcare companies early can lead to strategic advantages,” noted Baumann.

Mark Majeske agreed, adding, “Healthcare is growing rapidly in other technologies, and we expect payments to become more integrated into their daily operations, presenting substantial opportunities.”

 

For more insights on payments trends in 2024, watch the full webinar, Payments in 2024: What You Need to Know, featuring Alacriti and Datos Insights.

Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the credit union to meet their individual needs. Credit unions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP^® network, Visa Direct, and the FedNow^® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.