EXCLUSIVE: “Going With The Flow”

Elena Whisler, SVP, Sales and Relationship Management at The Clearing House (TCH), describes how they hope to transform business payments at home and abroad

TCH (The Clearing House) is one of the two principal automated clearinghouses for payments in the United States – the only private operator that operates a nationwide infrastructure along with the Federal Reserve Bank’s Automated Clearinghouse (ACH) for electronic funds transfers, processing financial transactions for consumers, businesses , as well as federal, state and local governments.

Owned by the country’s major financial institutions, TCH’s Electronic Payments Network (EPN) handles batch-processed domestic electronic debits and credits (mainly relatively low-value, high-volume bulk payments such as wages or recurring debits such as for utility bills), while CHIPS (The Clearing House Interbank Payments System ) is an alternative to Fed-operated FedWire for international transfers.

Neither EPN nor CHIPS are designed to be instant – payments typically take one to three days to complete – nor particularly transparent to the customer. But in 2017, TCH rolled out the RTP network, offering real-time gross settlement on a 24/7/365 basis for US domestic payments for the first time.

While initial uptake from businesses may not have been as enthusiastic as expected, the 2020 pandemic marked a major shift.

“Many B2B payments that have gone digital have stayed digital,” says Elena Whisler, SVP, Sales and Relationship Management at TCH – despite a surprising resumption of check volume in 2022. “With B2B payments, businesses want the same thing individuals want, namely access to cash [also] want predictability of cash and real-time data/analysis of that information.”

“We basically looked at what would happen, and what would have to change, if we connected the RTP network here in the US to RT1 in EuropeGoing”

Being responsible for roughly half of the clearing volumes in the states gives TCH a tremendous amount of insight into payment trends. And what you see are alternative payment providers driving the demand for faster, cheaper and more transparent services from legacy institutions.

“We see more and more smaller shops/smaller businesses, such as landscapers or dry cleaners, starting to accept wallet transactions; which is interesting because these wallets are a closed-loop network, so you have to belong to that network and wallet to move money,” Whisler says. “It gets businesses engaged in digital, which then allows them to ask their financial institution for more services.

“Our RTP network now spans the largest financial institutions in the country as well as the smallest, meeting the needs of all businesses and individuals here in the United States.

“We’ve seen this grow not only in terms of the number of financial institutions using RTP, but also in terms of technology providers offering services to the financial institutions. Over the past five years, we’ve seen more than 250 financial institutions go live on our network, as well as third-party service providers. We’ve pretty much reached critical mass now.”

With the volume of transactions passing through the RTP network growing by more than 10 percent every quarter, TCH has identified some interesting trends.

“We started to see people using it for things they don’t use other payment types for,” she says. An outstanding use case was paying workers outside of the standard two-week pay cycle.

“For the Uber drivers who drive around all day, they may have to deduct the wages they have earned [that day] and can do so through the RTP network, because of companies that offer such services, says Whistler. And it’s an example of technology having a real impact.

As Whisler points out, having immediate access to your money is empowering.

“Half of the American population works paycheck to paycheck. The RTP network is 24/7/365; so you don’t have to wait or plan ahead.”

In the B2B environment, escrow payments – often used in contract negotiations – offer volume growth potential, now that the RTP system can be used if the title company has access through its financial institution. However, there is still a way to go to persuade companies to see the benefits of using real-time rails. A recent Mastercard/PYMNTS report, Accelerating The Time To Realized Revenue: The Real-Time Payments Edition, based on a survey of 400 businesses from three key industries in the US and Canada, found that only 37 percent use them to settle or receive invoice payments, for example. 30 per cent of Canadian respondents said they were not interested in using them either – citing fear of fraud as a main reason.

Of course, North America does not operate in payment isolation, and neither does TCH.

After beating the Fed to introducing the country’s domestic real-time track, in April this year it launched a pilot program with SWIFT and pan-European payments infrastructure provider EBA Clearing to process instant cross-border (IXB) payments as well. Backed by various US, UK and Western European banks, the goal of the IXB initiative is to enable faster, smoother global money transfers by connecting directly to domestic payment networks.

Initial proof of concept was completed in October 2021, and expectations are that it will go live by the end of 2022.

“We basically looked at what would happen, and what would have to change, if we connected the RTP network here in the US to RT1 in Europe,” explains Whisler. “For example, one rule we have here with RTP is that you have to enter the transaction within five seconds. You go to Europe and they have a similar service level agreement related to payments. When we bring them together, we still want our businesses and individuals to have the same experience, whether the payment is domestic, state-to-state, whether it’s US to Europe or Europe to US.

“We believe we will change the cross-border payment landscape by connecting these two networks.”

The backdrop to the IBX pilot is a growing focus by global organizations on cross-border payments, as Whisler explains: “Over the last few years, the G20 in particular has a roadmap that really looks at global organizations, or systemically important. organizations, here in the United States and abroad, to see what we can do, and if we connect our current national networks, and the networks in other countries, does that push people in organizations to maybe do something different?”

She believes that it can absolutely change companies’ back office functions: “If companies can send and receive money 24/7, 365, they don’t have to think about cash flow forecasts in certain areas. They can send and receive their instructions, and the money associated with it, whenever they need it.

“The consequences for reconciliation and invoices are great. Your accounts payable, your accounts receivable systems, today, they are all after the fact. If you can shorten those cycles, and close that invoice the moment an invoice is due, that solves a lot of problems for businesses.”

Combined with more data being transferred with the payment message than ever before, thanks to ISO 20022 protocols, Whisler believes it could also help eliminate many more headaches – especially when things get messy.

“When you’re dealing with a whole payment, it’s pretty easy. It is reconciled and moved. It’s with partial payments, when things don’t work out, that reconciliation becomes a nightmare.

“If you think about goods that are shipped, and half of them are spoiled, or half fall off a boat. If you have data along with that payment, you can clearly say, ‘well, the people who accepted it accepted 50 percent,'” and so that 50 percent is covered and they can create another process to manage the remaining percentage that they were unable to receive.

“This requires a behavioral change in the businesses, related to customer receivables, in that they will then be able to create a process for the exceptions in their business, and not the payment part.” She adds: “At the end of the day, businesses need choice, they need to know what the networks are giving them in terms of accountability, as well as payment verification, payment transparency and the currency associated with it.”

This article was published in The Fintech Magazine issue 25, pages 60-61