Driveway.com will be the first online auto dealer to offer real-time payments (RTP) to sellers, the result of a new partnership with U.S. Bank announced last week that leverages The Clearing House’s RTP Network.

A pilot is currently underway with Driveway customers in the Portland area and will roll out to all customers after the pilot is completed. U.S. Bank did not specify when that would be.

“As far as we’re aware, this is a first,” Mike Jorgensen, head of emerging sales and strategy at U.S. Bank, told Bank Automation News. “It’s been a remarkable journey for us to be able to have Driveway come into our development studio and say, ‘How do we want to solve this problem together,’ and then have them be the first to go out and make this happen.”

RTP is a differentiator

Prior to the new offering, customers waited 24 to 48 hours to be paid via automated clearing house (ACH) or waited several days to be paid via physical check. By comparison, Driveway.com competitors take longer: Carvana takes 24 to 48 hours to transfer payment to sellers’ accounts, and Vroom sends payments two to three days after picking up the vehicle, those companies told reporters at BAN sister publication, Auto Finance News.

Lithia Motors, which owns Driveway, sold 275,496 used vehicles in 2021, compared with Carvana’s 425,273 units and Vroom’s 74,698 units. Driveway sold 1,650 cars in December 2021, exceeding 1,250 transactions or 15,000 annual run-rate goal, according to Lithia’s earnings report.

Used-vehicle value normalization in the wake of the pandemic will likely begin during the second half of 2022, according to a DBRS Morningstar report. In a strained used-car market, RTP makes a competitive difference, Tina Miller, senior vice president and chief financial officer for Lithia and Driveway, told Bank Automation News.

“Integrating RTP into the Driveway sell experience is a competitive advantage for us,” Miller told BAN. “As we see consumers comparison shop between offerings, RTP will enable us to source incremental inventory — which is especially beneficial with the current inventory dynamic — while also being an attractive experience for customers.”

Innovation studio solution

In 2021, Driveway — a corporate client of $573 billion U.S. Bank — asked the bank to develop a near-frictionless payment solution that would reduce the time it takes for online car sellers to receive payment. U.S. Bank brought the challenge to its global treasury management’s innovation studio, Jorgensen said. Developers, risk management and user experience teams are part of the innovation studio, and so is the customer, he added.

“We call it the ‘co-development process,’ where we have our customers come in and help us with requirements, and with delivery of things that mean the most to them,” Jorgensen said. “This way, we have our customers that actually become embedded within that agile journey team.”

The solution relies on The Clearing House’s RTP Network, which provides the payments functionality. U.S. Bank created a software “wrapper” to connect that capability to Driveway’s systems, which handles the valuation of the car to manage the transactions. The wrapper is an integration that allows U.S. Bank and The Clearing House to bring the power of RTP into the Driveway user experience, Jorgensen said.

While the RTP Network transfers the money into the seller’s account, an application programming interface (API) provides the connectivity for the account validation to ensure the money is going to the right destination, he said. To support the RTP and APIs, accounting systems must automatically update as well, Jorgensen added. To support that, U.S. Bank provided some customization into the way the system handled reporting to Driveway.

FIs play catch-up

Not all Driveway customers will be able to avail themselves of the RTP Network, however — some smaller banks and credit unions may not be able to process the deposits in real time. Where RTP is not enabled, U.S. Bank provides Driveway with intelligent routing to make the payment using the most efficient method available, according to a bank spokesperson. U.S. Bank plans to work with Driveway and other clients to onboard those financial institutions as they’re identified.

“Right now, The Clearing House was reporting between 60% and 70% of all depository accounts in United States are covered by real-time payments and they have that increasing year over year as we move forward,” Jorgensen said. “We are actively working with them and partnering with them, as are the other partner banks within The Clearing House, to try to make sure that we do all we can to expedite that.”

[stock_market_widget type=”inline” template=”generic” assets=”LAD” markup=”Shares of {name} ({symbol}) are trading at {price} ({change_pct}) as of {last_update}.” api=”yf”] Lithia’s market capitalization is $9.43 billion.

Auto Finance News’ Deputy Editor Amanda Harris and Associate Editor Whitney McDonald contributed to this report.