It’s no secret that the world is ready for real-time payments. In the age of one-click purchases - mobile commerce is the fastest growing segment of e-commerce in North America - the need to build fast, flexible and secure payments systems is a top priority. We caught up with Steve Ledford, Senior Vice President, Product and Strategy at The Clearing House to speak about the recent launch of Real-Time-Payments (RTP) in the U.S.
You often refer to the new system as being built “from the ground up” can you expand on what this means, and how is it a platform for innovation?
For the U.S., the RTP is the first payments system developed in the digital age. Building a brand new payments system for the first time in decades allowed us to take advantage of a lot of the countless advancements in both online computing platforms and methods of delivering information to customers.
By “ground up” we mean that the system, as the underlying platform, will be inherently safer and more integrated into web and mobile experiences. We’ve designed the system with extensive capabilities to send not just payments, but other types of messages that can be used to deliver a bill to a consumer, or invoices to companies, ultimately allowing information about the transaction to be exchanged.
Aside from the features embedded in the system – I want to emphasize that when we say that it’s a platform for innovation, it’s not just a tagline. We built the RTP as a core system that is adaptable enough to meet the future needs of consumers, meaning that the system will be able to support new ways of interacting, sending and receiving payments, or pursuing commercial activity.
With the increase of innovation, whether it be new payments products or services, we’re also seeing an increase in data breaches and cyber-attacks. Can you speak to how The Clearing House stays ahead of the curve in terms of security?
Innovating in a way that is safe and secure is something that we take very seriously. When we speak about vulnerabilities in some of the solutions we have today, we often don’t consider the limitations of the existing payments infrastructures. If the payments system underpinning the transaction is not operating in real-time, it creates risks for parties or intermediary financial institutions who have to spend funds before they’ve actually received them. These parties, or intermediaries, aren’t inherently insecure, but it certainly makes the payments process much more complex and harder to protect in terms of security.
Today, one of the most common ways of defrauding someone is by sending them an email that takes them to a website that purports to be the bank’s or biller’s website. While there isn’t any way of stopping this kind of fraud, we’re providing a safer alternative: the request for payment feature. This feature brings these types of transactions inside the payments system, increasing security and trust since it’s coming through a network that is bound by rules and regulations.
We’ve also made requirements that match the level of risk that each financial institution brings to the system. Requirements around customer authentication, secure communications and verifying the legitimacy of payments have been expanded to ensure that the new features, like request for payment, are executed in a secure environment.
In Canada, a key tenet of our payments modernization journey is collaborating with our members and stakeholders in the wider payments ecosystem. Can you provide some examples of key partnerships or collaborations?
The Clearing House is an organization composed of member financial institutions, but certainly not all financial institutions in the U.S. We knew that if we were going to build a system that delivers value to the ecosystem we would need to take into account the needs of more than just our members. At the start of the project we brought together a group of other organizations representing community banks, credit unions and other players in the payments ecosystem to advise us on the design of the system.
We were also active participants in the Faster Payments Task Force that was sponsored and convened by the Federal Reserve. The Task Force brought together a broad group that included more than just financial institutions and networks - representatives from commercial users, consumers, academics, and associations from across the country played an integral role in determining the 36 criteria a real-time payments system needed to meet. This information gathered from this process was vital to the creation of the RTP.
In addition to our domestic partnerships, we’ve had the pleasure of working with Payments Canada and a number of Canadian banks over the years. We’re looking forward to the success of your payments modernization program in Canada, and how we can continue sharing ideas about the future of payments.
Consultation both domestically and internationally has been a core element of our journey and will continue to inform the way we think about payments. In the end of the day we know that a successful payments system is one that has ubiquitous access and reach - providing the kinds of functionality that players across the payments ecosystem are going to be compelled to use.