The payments industry must jointly develop a common set of standards for using real-time payments if the new transaction type is to become a reality for consumers, top payments executives from JPMorgan Chase and Walmart said on a Payments Dive panel last week.

Collaboration will be key in building out consumer use cases for the Federal Reserve’s new faster payments system, FedNow, which launched last July, as well as the private rival RTP network, said panelists speaking at the April 24 Future of FedNow virtual event. Banks have gradually been adopting FedNow and RTP, though few consumer uses have emerged.

So far, real-time payments touch consumers mainly as push payments, such as providing disbursements like payroll payments, they noted. But to extend such instant payments for consumer uses, the industry will require a common framework for real-time functioning, said the panelists, also including executives from payments software provider ACI Worldwide and the U.S. Faster Payments Council.

“It's not a transaction that's supported, so it doesn't exist today,” said Matt Howarter, senior director of payments services at the retail behemoth Walmart. “The use case is not currently supported, in the rules or specifications for either of the networks, so I would say that's the biggest challenge.”

Merchants have long hankered for faster, cheaper alternatives to widespread U.S. use of credit cards, which are expensive for merchants to use because of interchange fees charged by the banks that issue the cards and the networks that process the payments. Visa’s dominance of the card network industry, along with No. 2 Mastercard, is seen by merchants as a key reason for more competition in the payments sphere.

There are ways in which real-time payments could improve payments for retail consumers, especially those who live paycheck-to-paycheck, Howarter said. For instance, real-time rails could be used to provide faster refunds. “We're really excited about the promise of being able to give customers access to their funds sooner,” he said.

The retailer is piloting pay-by-bank on its Walmart.com site, but it’s only available by the ACH payment method because neither FedNow nor RTP has the rules or specifications to enable those payments, Howarter explained. When a real-time network is functioning for such services, Walmart will start routing transactions over that system, Howarter said.

Howarter said he’s not optimistic about when that might happen, given real-time payments have been live in the U.S. since 2017. But teams at the Fed and at The Clearing House, which operates RTP, are showing more interest in discussions about it, he said.

Fraud a key issue

It’s imperative to develop a common framework for real-time payments to deal with the issues that arise in any payments system, such as fraud and dispute resolution, the panelists said.

The industry must figure out how to “educate the consumer (and) educate the different players in the ecosystem, explained Bridget Hall, ACI’s leader for real-time payments in the Americas. That’s especially true “in figuring out that collaborative path of how we work together to stop fraud,” she said.

Rupa Krishnan, the head of real-time payments for JPMorgan Chase, agreed with the concern related to fraud.

As use cases expand, particularly into the e-commerce environment, “having a clear dispute framework and rules and policies around what happens, who's responsible, who's liable” when payments don’t go right becomes “very important,” Krishnan said during the panel discussion. “We're not there yet. We're still playing in some of the early areas. So that's why it's on the road map, both from a product feature and network capability perspective as well as from a rules and policy perspective.”

U.S. Faster Payments Council CEO Reed Luhtanen doubled down on the fraud aspect during the panel discussion, saying the industry will need to understand “who’s on the hook” for payments that go wrong, especially when there are multiple parties involved in a transaction.

Those are the kind of things that “are probably more lacking right now in terms of what we need to figure out, and how we can work together as an ecosystem to answer those questions,” Luhtanen said. “There will be incentives for everybody involved to prevent fraud to the extent they're able to.”

Despite the threat of fraud emerging in the new real-time payments ecosystem, as it has in every other payment area, industry players appeared determined to move ahead and confront the risks. Indeed, having a new payment method alternative could potentially play a role in combating fraud overall.

Standard-setting

Industry players haven’t coalesced around real-time payments standardization so far, despite some effort to do so, the panelists noted. And the industry isn’t relying on the Fed to do that work, despite the example it and the Treasury Department can set as major disbursers of federal payments via the new instant rails.

“I would be surprised if the Fed came out with their own standard or specification for how to initiate a faster payments transaction, from a customer experience perspective,” said Howarter. “It's unfortunate that it's going to rely on the market to develop the systems and solutions that customers ultimately will interface with.”

While the Faster Payments Council has played an instrumental role in fostering industry communication, it’s not a standards-setting body. The panelists underscored the need for more industry work on how consumers will interact with real-time payments, whether it’s through QR codes or some other method.

Howarter noted the lack of industry alignment even with respect to payments apps widely used in the U.S. today, such as Zelle, which is supported by the bank-owned Early Warning Services and PayPal’s Venmo peer-to-peer payments.

The real-time payments realm “would benefit significantly,” with respect to ease-of-use, customer-adoption and reduced confusion, if the industry could “get aligned on a singular approach on how to initiate transactions,” Howarter said. “Until we do, I think, we're going to have adoption issues and confusion.”

Aside from consumer use cases, Walmart also stands to benefit from being able to use real-time rails for business-to-business transactions, Howarter said.

Credit cards to persist

None of the panelists expect real-time payments to topple the card industry’s dominance in the U.S. anytime soon. The two payment types are likely to coexist, with different consumers turning to different payment methods for different uses in different situations, they said.

“I think we're going to see adoption kind of naturally happen with specific customer sets and specific customer demographics that you're going to have the rewards junkies who like their points programs,” Howarter said.

Generally, consumers in the U.S. will continue to gravitate to card loyalty programs and rewards, panelists predicted. On the flip side, in situations where merchants impose surcharges for card use, consumers may favor other payment types, Hall noted. But for consumers who are living paycheck-to-paycheck, cards will still have a draw, she added.

“They're having to use that credit card because they need that line of credit, so I think it just kind of depends on the situation and the different methods that are available,” Hall said.

Eventually, there could be real-time payments incentives that emerge to shift consumer behavior in the direction of that payment type too, Howarter noted.

“The end result is credit is not going to go away,” Howarter predicted. “But I think there's definitely a potential of it disrupting the market.”