Fintech solutions, new payment rails and the rapid pace at which the financial sector is changing is putting massive pressure on the incumbents, and Jim Aramanda is urging the banking industry to move as fast as it can to stay competitive in the digital economy.
Speaking at the American Bankers Association Payments Forum in Washington, D.C. to financial institutions, credit unions and community banks, The Clearing House CEO defined the real threat.
“The real competition out there isn’t the other banks. It’s the fintechs and others that are using the payment system as it exists today to disintermediate you from your customers. I would tell you that’s the real existential threat.”
TCH’s Real-Time Payments system, which is open to all depository institutions, is a new real-time payments platform that all federally insured US depository institutions are eligible to use for payments. It was launched in November of 2017, and was billed as “the first new payments infrastructure to be introduced in more than 40 years.”
Aramanda says it needs to be a ubiquitous network in order to outpace the competition.
Reaching roughly half of US demand deposit accounts, which includes checking and savings, the platform is targeting every US bank and credit union by the end of 2020.
“We’re paying up to help everybody get connected because ubiquity is key.”
“And I should mention, maybe it came up in the panel discussion, one of the unique aspects of our system is what we call request for payment. And again, the whole strategy is to reconnect the consumer with the bank, keep them from going outside the banking industry. We have a bill pay pilot going live at the end of next quarter, beginning of the third quarter, and we’ve got a number of banks in this.”
“There’s a unique attribute of the system. It’s called a ‘request for payment’, and that is the ability for a biller to send a request for payment through the banking channels to your customers, and they in turn would push a credit out of their account to pay the bill. When that occurs, the banks that are hosting the request for payment are going to get paid $.10 for every transaction. This is new. Right now, these debits are coming out of your account, and you’re not getting paid at all. And it’s actually a cost to you. So we’ve flipped the model. It becomes – instead of a pure cost to you – it becomes a revenue stream for all of you.”
The incentive-based model is specifically designed to tackle the risks at play from new competitors.
“We need to get you connected quickly because, again, I think the biggest risk to our industry is coming from outside our industry. The fintechs have made no secret that they want your customers, and they’re offering lending products, et cetera. And let’s face it, in the digital age, which is clearly what we are in today, our payment rails were developed 40 years ago: pre-digital age, pre-internet, pre-everything.
I find it amazing that I can order a package from Amazon and have it delivered faster than I can get a payment from one bank to another. The fintechs are leveraging that vacuum, if you will.”