Consumer Expectations. It starts with the consumer experience. We all want things to happen as quickly, easily, and securely as humanly possible. Think back 10 years ago, and you were perfectly happy receiving a package within five (5) business days. Nowadays, we have amazon prime promising same or next day delivery coupled with Uber Eats, Domino’s, Lyft, UPS and others’ real time tracking. So, What do we want? “EVERYTHING!” And When do we want it? “NOW!” With sending and receiving payment it is no different. Real Time Payments (RTP®) focus on curing cash lag.
What are Real Time Payments (RTP®)? Global financial banking is robust, large, fast, and effective so how are RTPs additive? Imagine no blackout times to make or receive a payment. RTPs are a new way to transfer funds instantaneously anywhere, anytime, including weekends, afterhours, and legal holidays. RTPs are the first new banking clearinghouse in the U.S. since the 1970s (i.e. over 40 years). RTPs compliment other types of electronic payments such as ACH, card, and mobile but are distinguishable in that: (1) the payment settles instantly; (2) are final and irrevocable and cannot be clawed back or recovered after sending; and (3) can be sent 24 hours / 7 days a week / 365 days a year, even when other payment options are unavailable.
Availability of RTPs Locally and Internationally? Despite their mystique in the U.S., RTPs are nothing new. RTPs have existed in Europe for over fifteen (15) years. Asia’s RTP market boomed through the pandemic. Today, there are 56 countries utilizing RTPs with: India conducting over twenty five (25) Billion; China sixteen (16) Billion; and the UK three (3) Billion in annual RTP transactions. As e-commerce, the global marketplace, and the gig economy (i.e. freelance work or short term labor contracts) grow, demands for RTP is forecast to escalate everywhere. Banks have made RTPs a top priority for implementation.
Benefits of RTPs? RTP is designed for both sending and receiving funds to both companies and individuals. Because of immediate 24/7/365 availability and instantaneous settlement of funds, RTPS are perfect for: Emergency or time sensitive payments (e.g. real estate closings, stopping per diem interest from accruing); Customer billing; Paying vendors or suppliers; E-commerce for online payments, Employees for payroll; and anyone else who expects instant payment for labor, services, or goods delivered. Parties to the transaction will be able to see where the money is every stage of the way. Within fifteen (15) seconds, payment confirmation will be received showing whether the transmission was successful or failed. Additionally, for added security, prior to setting up an RTP account, the banks themselves will require some identity proofing of the account holder.
Limitations on RTPs and Workarounds. $100,000.00 is the current maximum that can be sent at one time. In some rural areas that may be useful for closing a real estate transaction, but not so much in South Florida. The work around is that multiple and successive RTPs can be sent. In as much as the cap can easily be circumvented, there are talks about raising the ceiling to $1 Million for a single transfer. In the meantime, RTPs can be readily used in real estate transactions by: allowing buyers to make Earnest Money Deposits, or by having title and escrow companies pay disbursements that fall below the $100,000.00 cap. Moreover, just like wires, there will also be a banking charge for RTPs. While not a rule, consumers who send RTPs tend not to be charged, with the cost of the RFP being born by the party requesting payment.
What platform is used for RTPs? RTP messages and data use the ISO 20022 format (first introduced in 2004). Banks and financial institutions globally are set to transition their payment systems from using SWIFT messages to the highly structured and data-rich ISO 20022 standard. ISO is the language and model for relaying electronic messages regarding payments between financial institutions. In techy talk, it gives the financial industry a common platform for sending payments messages and exchanging payments data, using a central dictionary, a standard modelling methodology, and a series of Extensible Markup Language (XML) and Abstract Syntax Notation (ASN.1 ) protocols. The payment itself carries reference details and unique identifiers for any inquires that arise.
Requests For Payment (RFP) – i.e. sending an electronic bill or invoice. Billers can send RFPs (requests for payment) to customers or debtors. Customers or debtors can respond to RFPs from billers (e.g. your bill for $100.00 is due). In other parts of the world, RFPs are called Requests To Pay. Because the ISO 20022 platform can retain a substantial amount of data, RFPs can even attach actual documents like the bills or invoices. The payment received in response to an RFP will include the reference info from the original RFP.
What Additional Information Can Be Sent in RTPs? RTPs enhance the free flow of information through real time initiation, confirmation, and messaging at every step. There are three (3) types of non-financial information that can be used. The Request for Information (RFI) allows the payee to ask for more details about the payment (e.g. I received your payment, What is it for?). A “Remittance Advice,” can be attached to a payment which can include up to 4000 characters (about 650 words) for invoice numbers and payment details (e.g. like the memo section when sending a wire or check). “Payment Acknowledgment” from the payee acknowledging their receipt of funds (e.g. Thanks for the payment, it has been posted to your account!).
Preparing your business for RTPs. On the banking side you will want to update your system to accept the new BAI codes for real time payments. BAI stands for Bank Administration Institute, and is a file format used by banks to transfer financial data. These codes have been published to ensure consistency amongst all US banks handling RTPs. Review and toggle your alert and notification settings for RTPs. Since RTPs are available 24/7 figure out how you will be responding to payments received after hours, nights, and weekend. Clarify who has the authority to initiate and then approve RTPs because once the payment is sent it is final and irrevocable.
RTP vs ACH Unlike an ACH debit, with an RTP the biller does not initiate the pulling of funds out of a customer’s account; so there is no risk of returns or other types of rejections once payment is sent by the customer. In other words, if FPL did an ACH debit it would be up to FPL to prove that the payment was duly authorized by the payor. Additionally, ACHs are a domestic form of payment in the U.S. and cannot be done internationally.
Can RTPs Enhance Your Real Estate Closings. Not currently but hopefully soon. There are three (3) ways RTPs could expedite the closing process. Using RTPs: Buyers could pay their earnest money deposit to the title company; Buyers or Lenders could send the title company funds needed to close; and title companies could make all the necessary disbursements to the appropriate payees in real time. Unfortunately, despite RTPs availability, until banking policies change RTPs are just out-of-reach for the real estate market. According to Bank of America, their Real Time Payments platform unavailable in their Small Business Banking space (i.e. businesses with annual revenues under $10 Million, which pretty much rules out just about every title company). Moreover, according to BOA, RTPs are also not currently available for third party funds accounts such as an IOLTA or Trust account, which are the escrow accounts title companies use to fund.
Conclusion. With digital closings coming onboard to simplify and expedite real estate transactions, there is a concomitant need for digital funds to pay for it all. Everyone wants to be able to pay and do things simpler, easier, and safer. The way consumers are paying have changed and RTPs are the future.
DISCLAIMER: Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant. The author Randy Gilbert, J.D. is neither an attorney nor an accountant. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ®