The Clearing House is a payments company and a trading house representing 24 of the largest banks in U.S. It is taking new initiatives to play a more influential role in developing a faster payments system for the U.S. The company will undertake a multi-year effort to build a real-time payment system to be used by all of the country’s financial institutions. The new system will be designed to address gaps in transaction processing and to provide more secure payment methods to consumers and businesses.
The new system is expected to support tokenization in order to route payments via tokens instead of using sensitive account details. This new initiative shows a change in mindset of U.S. financial institutions. The U.S. has been left behind other countries which have already adopted an updated digital payments infrastructure. The Federal Reserve is also pushing the industry to address threats and gain opportunities by upgrading the payment rails. NACHA, which sets rules for The Clearing House network, is also working on an initiative to enable same day clearance of ACH transactions.
The core benefits that the new system will likely bring are:
- Convenience – consumers will be able to pay each other directly from their existing accounts using online or mobile banking.
- Account Data Privacy and Ease of Use – the system will route payments based on tokens that cannot be used to debit accounts, so senders and receivers will not need to exchange complex, sensitive bank account details.
- Cost Savings – an efficient real-time payment service provides a superior alternative to costly funds transfers, check cashing services and last-minute bill pay.
- Certainty – senders and receivers will receive immediate notifications of payment, and the risk of returned payments will be eliminated, because sending financial institutions immediately verify good funds.
- Safety – sending and receiving financial institutions, which have existing relationships with their customers, will be responsible for authentication.
- Cash Management – the ability to send and receive payments immediately will give customers more control over cash flow, which is particularly important for cash-constrained small businesses and consumers.
Jim Aramanda, President and CEO of The Clearing House said in an official press release: “Consumer safety and privacy are core competencies of the banking industry that will be brought to bear in the development of this system. Real-time payments will incorporate strong safeguards to protect account information, building on The Clearing House initiative to develop and implement tokenization.”