Dive Brief:

• The U.S. Faster Payments Council advocated for the use of email address and phone number identifiers via a shared, open digital directory in a report this month as a way to increase adoption of real-time payments in the U.S.
• The council used a consumer bill payment example to show how an open directory could streamline and speed up the adoption of real-time payments in the U.S., explaining that existing closed loop directories aren’t inoperable and therefore hinder broader instant payment use.
• “As instant payments adoption continues to grow, financial institutions, fintechs, and payment service providers face challenges in managing account information, ensuring interoperability, and mitigating fraud risks,” the council said in an April 7 press release regarding the report. “Directory services play a key role in addressing these challenges by enabling seamless routing of payments and protecting sensitive payment credentials.”

Dive Insight:

The U.S. has been seeking to increase use of real-time payments, also known as instant payments, as a means to increase the speed of settlement of transactions, bolster commerce and keep the country on pace with digital payment advances in other parts of the world.

The Federal Reserve launched a real-time payments system called FedNow in 2023 and it competes with a private system called RTP that was started in 2017 by The Clearing House, which is owned by major banks. Both systems operate through banks. The U.S. has lagged other countries, such as India and Brazil, in cultivating use of such faster payment systems.

FedNow was designed as a means of attracting smaller U.S. financial institution use of such instant payment systems after RTP was mainly used by their larger rivals. While FedNow’s arrival helped bolster use overall of both systems, they have struggled to lure broad adoption and real-time payment use in the U.S. remains relatively low.

The use of open directory services would help accelerate corporate and consumer use of real-time payments in the U.S., the report from the council argued.

“An open directory service could be available for use by any participating payment solution using common standards and methods to facilitate ease-of-use and adoption of faster payments by associating an alias to a specific account,” the report explained.

The council’s report described how payment companies’ services, such as PayPal Holdings’ Venmo and Early Warning Services’ Zelle, currently use private “alias” directories, which tie email addresses and phone numbers to financial accounts, to facilitate payments. But it explained how those peer-to-peer systems don’t support broader interconnections for payments, such as paying bills.

“The challenge is that little interoperability exists between these closed-loop P2P systems,” the report regarding bill-pay said. “For example, if a consumer manages their funds in a PayPal digital wallet, but one of their billers only accept Zelle, the consumer has no ability to apply their PayPal funds to pay the biller.”

Using a more universal payment directory service would not only make such payments easier, the council argued it would also buttress anti-fraud defenses by increasing protections for sensitive personal data. Such a directory “securely maintains information, and there are rules governing what data is included, in what format, who has access, how they can and cannot use it among other things,” the report said.

A group of payments professionals who are members of the council wrote the report, led by industry consultant Peter Tapling, who is managing director of PTap Advisory, LLC in Chicago and chair of the council’s Directory Models Work Group.