The first new U.S. payment system in 40 years is coming, and it aims to dramatically simplify processes from transaction initiation through to reconciliation.
Pivotal to this is the way Real-time Payments (RTP) combines immediate funds availability, settlement finality, instant confirmation, and integrated information flows—all in a payment made in seconds. Bringing together speed, data, and communication solves for longstanding challenges.
Scenarios like these trigger a phone call, an exception process, research and delay.
The execution of a payment within the banking system is very efficient but that efficiency does not extend to the end-to-end processes around it. Complete and integrated information has always been a challenge. Communication is only in one direction from payer to payee. In order to pass information back and forth between counterparties communication must take place largely outside of the payment system. Lag times in payment and settlement exacerbate the communication issues. A lack of transparency on the whereabouts and arrival of funds can hinder the flow of business especially when urgent. The sum total of challenges impacts liquidity and risk management along with cash positioning and forecasting.
Companies have developed workarounds to bridge fragmented processes. Solutions through services and outsourcing providers such as scanning and rekeying checks, purchase orders and invoices achieve standardization, automation and systems mapping to integrate payments and address pain.
RTP broadens the scope of efficiency to the business processes and communication surrounding a payment.
Auto-posting occurs when the right level of data accompanies a transaction for invoice matching. Along with instant payment notification RTP provides flexibility so that all of the data needed to identify a payment and the reasons for exceptions can accompany a payment. Not only does this optimize auto-posting and reconciliation but also helps to minimize payments inquiries. Payees can dedicate fewer resources to receivables posting and reconciliation. This distinguishes RTP from other existing systems.
Existing payment systems allow communication from payer to its bank, and from its bank to the payee’s bank. A distinguishing attribute of RTP is the ability for bidirectional communication within the secure system. The value of this includes:
Payment confirmation Payers are notified by the RTP system that funds have reached the payee’s bank account. This is useful for urgent payment situations as it closes the information gap for payees awaiting funds and may help to minimize payment status inquiries to call centers.
Request for payment In the future vendors will be able to send a Request for Payment securely within the RTP system. A Pay It Now response will allow payers to choose immediate payment.
Speed, transparency, integrated information and process simplification have a ripple effect of benefits. Examples include:
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Just-in-time payment and reduced settlement time supports better control over cash. Payees gain certainty of funds due to immediate funds availability and payment finality.
Payment finality enables a continuous real-time view of cash positions. Interim reporting and forecasting become unnecessary.
Payment immediacy and predictability help companies to more tightly integrate the management of payments and liquidity.
Why is J.P. Morgan investing significantly in Real-time Payments? As a leading participant in RTP system development, we are helping to shape the new system with the aim of supporting our clients in their broader objectives. These include transforming the customer experience as market expectations rapidly change, rounding out available payment choices to support a wider range of needs cost-effectively, and simplifying business processes. Moving beyond a narrow definition of payment efficiency is fundamental to shaping the future of payments.
Connecting the buyer and supplier in real-time and simplifying the business process by harnessing essential information
Solving for decades-old payment challenges is not easy. We are experienced in helping clients to navigate payment system implementations for optimal results. Solutions will be available to simplify the adoption of RTP and its integration into your existing payment flows. Doing so will remove complexities and benefit all participants.
The first new U.S. payment system in 40 years can help businesses to simplify and gain efficiencies while vastly improving the payee experience.
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