What is driving the growth of real-time payments?

Real-time payments are the almost instant transfers of funds that are revolutionizing the way people move money, with new networks and technologies launched to meet consumer and business demands. Real-time payment processing also provides a strategic platform for disruptive innovation at a senior leadership level.

The growth of real-time payments has been driven by a number of key factors¹. These include:

• A growing demand for convenient payment and authorization methods.
• Financial inclusivity allowing new participants with better access to RTP capabilities.
• Advances in digital overlay services which have enabled frictionless payments, immediate settlement, and a more seamless user experience.
• Better access and connectivity to new payment rails due to APIs and open banking.
• Government and other initiatives prompting a move away from a reliance on cash.

What are real-time payments?

Real-time payments are those made between banks or other financial institutions that are initiated, cleared, and settled almost immediately at any time of the day or night, seven days a week, 365 days a year. This contrasts with checks, which often take several days to clear through the banking process, or cash which, although immediate, is not always a convenient way to pay, especially for larger sums.

What is a real-time payment system?

Real-time payments systems have been set up by financial providers to offer an almost instantaneous form of money transfer, largely driven by the demands of business to improve cash flow and simplify business operations. In recent years, improved technology has made the functionality of real-time payments both possible and effective and has resulted in increased adoption rates and accelerated usage across the business world.

How does real-time payment processing work?

All real-time payments involve five parties:

• The payer
• The payer’s financial institution
• The payee
• The payee’s financial institution
• The underlying RTP network

The process by which real-time payments work is very simple. First, the payment is initiated by the payer and then authorized by the payer’s bank or financial institution. Next, a message is sent via an underlying RTP network, during which time it validates the message and confirms the liquidity. The payment is then either accepted or rejected if insufficient funds are present in the payer’s account. The funds are then transferred to the payee’s bank account and a payment notification is sent to the payee as confirmation.

New technology is being adopted which is developing real-time payment infrastructure and ensuring RTP providers can enable payees to accept a variety of payments, as well as payers to make enterprise level payments. This is optimizing payment processing and making it easier for a range of businesses to get paid in more convenient ways. It is generally very easy to set up online payment processing for real-time payment transactions – and well worth developing a better understanding of exactly what is online payment processing, and how it could benefit business.

The potential benefits and risks of adopting real-time payments

Real-time payments systems and electronic payment options have a range of advantages for both customers and enterprises. Advantages of real-time payments can include:

• Improving real-time cash flow management and liquidity management for businesses while giving consumers a much clearer picture of their finances.
• Automatically reconciling payments, optimizing back-end processing, and making it easier to resolve errors and reduce processing delays.
• Boosting efficiency through eliminating paper-based payments operations.
• Playing a key role in facilitating seamless overseas transactions.
• Satisfying growing consumer demand for instant access to funds.
• Offering more convenient electronic payment systems.
• Empowering organizations to optimize existing service offerings and service new markets, creating new revenue streams.
• Enhancing business performance, improving operational efficiency, and reducing the risk of fraud.

Of course, there are also possible risks and drawbacks, including:

• There is no margin for error, with no time for corrections once payments are made
• Cost barriers from adopting new technologies and making changes to existing systems
• The legal implications such as finality of payment and post-transaction resolution
• Continuous availability can bring with operational risk with incidents materializing much earlier than with traditional payments

The types of payments that could benefit from real-time technology

There are several payment types that could experience real-time payment benefits, including:

• B2B payments such as supplier payments and refunds.
• Peer-to-peer payments: It is possible to offer digital wallet solutions and other payment technology trends that enable people to pay one another directly from their bank accounts via an app. These have been integrated with real-time payments, raising consumer expectations.
• Customer payments, such as shoppers purchasing online and householders making bill payments.
• Consumer to government payments, such as taxes, donations, and loan repayments.
• Business to consumer payments, including rebates and refunds, legal settlements, insurance claims, and employee wages.
• Government to consumer payments, such as subsidies, tax rebates, pensions, and other social benefit payments.

What is driving the growth of real-time payments?

Real-time payments present opportunities for enterprises to win, serve, and retain customers through more efficient, secure, and engaging commerce experiences. This can be due to the following factors:

• Technological innovation: The adoption of smartphones has led to the rise of new domestic person-to-person (P2P) payment providers.
• New players and business models: Many FinTech startups are focusing on enterprise fraud management for mobile payments, offering services such as fraud detection, improved customer experience, and quick fund availability.
• Merchant expectations: Businesses are looking at real-time payments to enhance their cash flow management, to reduce fraud activity, and provide value to customers.
• Consumer expectations: These are growing in an age of speedier processing and more instant gratification. 75% of consumers feel it is important to receive payments and have access to funds instantly.¹
• Regulatory pressure: Regulations in some developed countries are supporting real-time payments, which can benefit both consumers and the government.
• Globalization: Consumers and corporations expect the same simple payment and transfer experience regardless of where they are in the world.