This was a good week for real-time payments in the United States. The Clearing House released a statement saying they would build a real-time system and the Federal Reserve is expected to ship an update any day about their plans.

We, at Dwolla, just recently signed a deal with BBVA Compass to bring real-time payments to everyone in the United States for the first time.

One of the largest banks in the world has partnered with a small Iowa company to facilitate worldwide real-time payment transactions. ~ International business times

While we’ve been singing the real-time song for a few years, to have the biggest lads in the land come forward and publicly say, “We’re in, on real-time”… is hard to describe. Here is our public release of FiSync a little over 2 years ago at Finovate, in May 2012.

Why is real-time so important?

This is a difficult thing to explain in terms of numbers because the leap is so huge in terms of value. It’s easy to lose credibility by talking about the need in the context of the markets size.

Yesterday, the only real way to create real-time transactions was to create the illusion of them for most people and companies.

When this goes live, it’s possible by hitting an API instead of creating a batch file. Just by selecting where to send the payment instructions… It’s going to be possible and most importantly, it is going to be accessible through Dwolla’s API.

Batch & delays are expensive. There’s a real cost to capital.

To make something appear real-time an organization can either grant funds (create credit and thus, debt) or it can pre-load accounts in order to get money to another party more quickly. This is common in marketplaces and in payout schemes where a business or organization has to park a huge chunk of money beforehand so that the receiver doesn’t have to wait.

At that point, the business is obligating an asset that they won’t be able to leverage or invest while it’s sitting. So the business (maybe your business?) preloads and may even take out a line of credit from a bank in order to grant access to a third party faster… either way… that’s debt absorbed by the provider and it costs money when you create debt.

We all know debt is expensive. If you’re preloading, as a big business who has the cash on hand you’re not getting the ROI you would in other investments. What’s your companies ROI? 5%? Whatever you’re preloading you’re losing the ROI on. Even if your business is preloading tens of thousands of dollars, and not billions, that’s operational capital that could go elsewhere.

When you’re operating in the billions, or trillions, as many big organizations in the US are… The cost of capital constricted by the constipated process of moving money creates a huge cost center.

Time is money and right now money doesn’t move as fast as it could. That costs someone a lot of money.

So when happens when the underlying transactional systems start moving from 1,2,3 days to a 1 second or less transaction time? New opportunities present themselves.

  • Products change.
  • Markets change.
  • Expectations change.

I am thrilled about the work Dwolla has done with FiSync and the industry movement towards real-time. The returns for everyone are going to be hard to fathom but systemically beneficial to us all. The market’s appetite for faster payments and real-time will only ever do one thing, get bigger.

The transition in the US financial system to real-time standards is likely to only happen once in our life time and it’ll be the foundational layer of our economy for decades. I am thrilled to have the opportunity to be on the ground floor of this with the team at Dwolla.