Closing on a house can take almost two months, making it a prime target for instant payment settlement.
To get keys into homeowners’ hands even faster, KeyBank is working with The Clearing House and EMTransfer, a real estate cash management platform, to apply the RTP rail to real estate transactions.
“We’re all aware of the time for wires or e-checks or paper checks,” said Jon Briggs, head of commercial product for KeyBank. “This will enable us to process these payments in a manner of seconds.”
TCH is looking to expand use cases for its RTP network to gain more usage as the FedNow system gets set to launch in the coming weeks, while KeyBank hopes instant settlement will boost the bank’s embedded finance strategy.
“Firms have been dipping their toes in RTP for real estate,” said Cheryl Gurz, vice president of RTP product development for The Clearing House, adding that some title companies have used the rail to connect to a buyer or seller’s bank “here and there” but not in a large scale way. EMTransfer will greatly expand RTP’s use for real estate, Gurz said.
EMTransfer will access real-time settlement through a KeyBank application programming interface. The API enables real-time payments to be sent over the RTP Network. EMTransfer consolidates payments for title companies, insurance firms, lawyers, or other parties that need to be paid during a real estate closing. Residential real estate closings take an average of about 50 days, according to RocketMortgage.
“A real estate transaction has a complexity of a single payment that has to be parsed out to a number of recipients,” Briggs said. “There’s the seller, the real estate agent, the title company, insurance companies, sewer hookup, etc.”
The collaboration will mitigate fraud risk via immediate confirmation of receipt for all parties in a real estate transaction, TCH said. There’s also an opportunity to reduce per diem payments, or the fees charged for closings that linger beyond the previously scheduled date. Agent commissions can also be paid faster, and the product can be used in states that allow buyers and sellers to use different title and escrow companies. In those cases, the RTP network can be used as a bridge between companies if the banks are on the RTP network.
“What makes this interesting is RTP is a 24x7x365 rail,” Briggs said. “We all have day jobs. We’re not thinking about settling a real estate transaction.”
The RTP network has more than 300 bank members, covering about 70% of the addressable bank accounts in the U.S.
It faces potential competition from the launch of FedNow, which is scheduled for July. FedNow will be accessible to more than 9,000 financial institutions, though it will take a year or more for the institutions to add support for FedNow. RTP has been live for about five years already.
Real estate firms already use third-party software to aggregate their payments, and these software providers can use real-time payments to transact outside of business hours, according to Gurz. “The payment can be processed at any time.”
The next phase will be to include TCH’s Request for Payment, or real-time billing. Real-time billing combines digital bill presentment with the RTP network, enabling payments to be processed at the time of billing or at a predetermined time based on the payers’ cash position. That feature is under development for real estate closing, Gurz said.
KeyBank is also hoping the use of real-time processing for real estate can inspire use for other financial services, as it looks to grow its embedded finance strategy, Briggs said. Embedded finance refers to the use of payment credentials to offer a variety of financial services, often from third parties.
As use cases for real-time settlement proliferate, disbursements similar to real-estate closings — where payments that are related but sent to multiple recipients — will be a primary area of focus, according to Albert Bodone, director of commercial and enterprise payments for Javelin Strategy & Research.
“Immediate clearing and settlement can be extremely important when you’re making these types of payments,” Bodone said.
Payment technology firms such as AptPay, for example, are positioning real-time payments as a way to enable insurers to send and receive payments upon request. This could help policyholders who need to access compensation fast after a loss. Policy premium payments and refunds are another real-time settlement use case for insurance firms.
In auto lending, U.S. Bank partnered with e-commerce site Driveway.com in 2022 to support instant settlement for car sales. TD Bank released a similar product at around the same time. U.S. Bank later added support for real-time loan funding to dealerships after the bank finalized the loan contract.
Given the limits in real-time transactions — the RTP network has a limit of $500,000 and the pending FedNow service has a $1 million limit — transactions will likely be in line with the typical closing costs for an auto loan or a house.
“Real-time pay for disbursements will be used more in the consumer space than commercial early on, but there is a fair amount of delay where there are layers of people who need to be paid as part of a larger transaction,” Bodone said.