EXCLUSIVE: “Going With The Flow” – Elena Whisler, The Clearing House in ‘Discover Money20/20 USA 2022’
Elena Whisler, SVP, Sales and Relationship Management at The Clearing House (TCH), describes how it’s hoping to transform business payments at home and abroad
TCH (The Clearing House) is one of the two principle automated clearing houses for payments in the US – the only private operator to run a country-wide infrastructure alongside the Federal Reserve Bank’s automated clearing house (ACH) for electronic funds transfers, processing financial transactions for consumers, businesses, as well as federal, state, and local governments.
Owned by the country’s major financial institutions, TCH’s Electronic Payments Network (EPN), handles batch-processed domestic electronic debits and credits (mainly comparatively low-value, high-volume bulk payments like payroll or recurring debits such as for utility bills), while CHIPS (The Clearing House Interbank Payments System) is an alternative to the Fed-operated FedWire for international transfers.
Neither EPN nor CHIPS was designed to be instant – payments typically take one to three days to complete – nor particularly transparent for the customer. But, in 2017, TCH rolled-out the RTP network, offering real-time gross settlement on a 24/7/365 basis for US domestic payments for the first time.
While the initial uptake by businesses might not have been as enthusiastic as anticipated, the pandemic in 2020 marked a major shift.
“Many B2B payments that moved to digital have stayed digital,“ says Elena Whisler, SVP, Sales and Relationship Management at TCH – and this despite a surprising resumption of cheque volume in 2022. “With B2B payments, what businesses want is the same thing individuals want, namely access to their cash. They [also] want predictability of their cash and real-time data/analytics of that information.”
“We basically looked at what would happen, and what would need to change, if we connected the RTP network here in the US to the RT1 in EuropeGoing”
Being responsible for roughly half of clearing volumes in the States gives TCH a huge amount of insight into payment trends. And, what it’s seen is alternative payment providers are driving demand for faster, cheaper more transparent services from legacy institutions.
“We’re seeing more and more smaller shops/smaller businesses, such as landscapers or drycleaners, for example, starting to accept wallet transactions; which is interesting because those wallets are a closed-loop network, so you have to belong to that network and wallet, in order to move money,” says Whisler. “That gets businesses involved in digital, which then allows them to ask their financial institution for more services.
“Our RTP network now has a good cross-section, between the largest financial institutions in the country, as well as the smallest, meeting the needs of all businesses and individuals here in the US.
“We’ve seen that grow not only in terms of the number of financial institutions using RTP, but also in terms of technology providers offering services to the financial institutions. Over the last five years, we’ve seen more than 250 financial institutions go live in our network, in addition to third-party service providers. We’ve pretty much achieved critical mass now.”
With the volume of transactions passing through the RTP network growing at more than 10 per cent each quarter, TCH has identified some interesting trends.
“We began to see people using it for things that they are not using other payment types for,” she says. A stand-out use case was paying workers outside of the standard two-week payroll cycle.
”For the Uber drivers who drive around all day, they may need to pull the wages they’ve earned [that day] and can do so through the RTP network, because of companies offering such services,” says Whistler. And that’s an example of the technology having a real-life impact.
As Whisler points out, having instant access to your cash, is empowering.
“Half of the US population work pay cheque to pay cheque. The RTP network is 24/7/365; so you don’t have to wait or plan in advance.”
In the B2B environment, meanwhile, escrow payments – commonly used in contract negotiations – offer volume growth potential, now that the RTP system can be used if the title company has access through its financial institution. There’s still a way to go, though, in persuading businesses to see the benefit in using real-time rails. A recent Mastercard/PYMNTS report, Accelerating The Time To Realized Revenue: The Real-Time Payments Edition, based on a survey of 400 businesses across three key industries in the US and Canada, found just 37 per cent are currently using them to settle or receive invoice payments, for example. Thirty per cent of Canadian respondents said they weren’t interested in using them, either – citing fear of fraud as a major reason.
North America doesn’t operate in payments isolation, of course, and neither does TCH.
Having beaten the Fed to introducing the country’s domestic real time rail, in April this year, it launched a pilot programme with SWIFT and pan-European payments infrastructure provider EBA Clearing to process immediate cross-border (IXB) payments, too. With the support of various US, UK and Western European banks, the aim of the IXB initiative is to enable faster, smoother global money transfers by connecting directly into domestic payments networks.
Initial proof of concept was completed in October 2021, and the expectations is for it go live by the end of 2022.
“We basically looked at what would happen, and what would need to change, if we connected the RTP network here in the US to the RT1 in Europe,“ explains Whisler. “For example, a rule we have here with the RTP is that you have to post the transaction within five seconds. You go to Europe and they have a similar service level agreement related to payments. When we bring them together, we still want our businesses and individuals to have the same experience, whether the payment is domestic, going state to state, whether it’s going US to Europe, or Europe to the US.
“We believe we will change the cross-border payment landscape by linking these two networks together.”
The backdrop to the IBX pilot is an increasing focus by global organisations on cross-border payments, as Whisler explains: “Over the last few years, the G20, in particular, has a roadmap that is really looking to global organisations, or systemically important organisations, here in the US and abroad, to see what we can do and, if we link our current domestic networks, and the networks in other countries, does that push people in organisations to maybe do something differently?”
She believes that it could certainly transform enterprises’ back office functions: “If businesses can send and receive money 24/7, 365, they don’t need to think of cashflow forecasting in some areas. They can send and receive their instructions, and the money related to that at the time they need to.
“The consequences for reconciliation and invoices are profound. Your accounts payable, your accounts receivable systems, today, they’re all after the fact. If you can shorten those cycles, and close that invoice in the moment that an invoice needs to get paid that solves a lot of problems that businesses.”
Combined with more data being transmitted along with the payment message than ever before, courtesy of ISO 20022 protocols, Whisler believes it can help eliminate many more headaches, too – particularly when things get messy.
“When you’re dealing with a whole payment, that’s pretty simple. That gets reconciled and moved. It’s with partial payments, when things don’t work that reconciliation becomes a nightmare.
“If you think of goods being shipped, and half of them being spoiled, or half of them falling off of a boat. If you have data along with that payment, you can clearly say, ‘well, the people that accepted it agreed to 50 per cent’, and so that 50 per cent is covered off, and they can create another process, in order to manage the remaining percentage that they weren’t able to receive.
“This requires a behaviour change in the businesses, related to accounts receivable, in that they will then be able to create a process for the exceptions in their business, and not the payment part.” She adds: ”At the end of the day businesses need choice, they need to know what the networks provide for them in terms of accountability, as well as confirmation of payment, transparency of payment and the foreign exchange related to that.“
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