Pay And Drive Away With Real-Time Payments

You’ve been saving for two years to buy a new car without taking out a loan. You’ve read the reviews, found the right car in stock, agreed on a price and now you’re heading over to the dealership with checkbook in hand on a Friday evening, ready to cruise through the weekend.

But you may have to wait until Wednesday because that’s how long it could take for the check to clear.

That’s changing with real-time payments, the first new payment rails in 40 years. U.S. Bank is using the Real-Time Payment (RTP) network to deliver funds to more than 800 auto dealers immediately, so if you pay with a check the money hits the dealership’s bank account in real time and you can enjoy the car for the weekend.

“While the traditional ACH payment method for funding auto loans can take several days – especially when sales are made outside of banking hours – real-time payments to dealers are fast, secure and available seven days a week, including holidays,” the bank said in its announcement.

ACH (Automated Clearing House) networks date back to the early 70s. The U.S. has two — one operated by the Federal Reserve and the other by The Clearing House (TCH), owned by some of the world’s largest banks. TCH introduced its RTP in 2017; the Federal Reserve, after several years of study and discussion, plans to launch its own version in 2023.

Although the TCH network is open to all federally insured U.S. depository institutions, some smaller banks and credit unions are reluctant to use a system owned by the large banks.

Mike Jorgensen, head of emerging solutions at U.S. Bank, said that the bank’s programs for auto dealers provides a concrete example of how RTP can benefit businesses.

“We’ve developed two important use cases for the auto industry. When a consumer takes out an auto loan, the dealership often waits days to have access to the funds from the sale. With real-time payments, we’re now delivering the funds immediately after the consumer is approved for the loan, even on nights and weekends. We also worked with Driveway.com to enable consumers who sell their vehicle on the platform to be paid before their car leaves their driveway.”

The pandemic changed the way consumers and businesses did their banking, leading to more use of remote deposit capture of checks, for example, when branches shut down or restricted their hours.

“The pandemic forced companies to re-think how they can more efficiently accept payments and pay vendors, employees, customers, etc.,” Jorgensenn added. “Real-time payments allow them to send and receive payments instantly, 24/7/365. We’ve seen an acceleration of new use cases, as businesses increasingly understand that creating a better payment experience (for B2B or B2C payments) through real-time payments provides them a competitive advantage.”

A dealership that lets a car buyer drive off the lot with her new vehicle on a Friday evening, after most banks have closed, has a competitive advantage over dealerships which would make her wait for several days.

Jorgensen said RTP adoption has grown 35% year over year and he expects it will grow even faster once the FedNow real-time payments platform is operational and creates expanded awareness.

“We also anticipate FedNow’s progress will accelerate usage of the RTP Network.”

U.S. Bank is participating in a FedNow pilot, he added.

“Although The Clearing House’s RTP Network already reaches approximately 60 percent of U.S. Demand Deposit Accounts, FedNow is expected to extend the reach of instant payments to clients of many community banks and credit unions who have not joined the RTP network.”

Businesses will be able to use either network, he added.

“With FedNow also progressing, we’re developing capabilities that will allow business clients to route and receive their real-time and instant payments seamlessly, whether it’s via RTP or FedNow.”