Real-Time Payments Explained: Benefits for Businesses

Real-time payments and instant payments have come a long way from being an additional feature to a must-have opportunity that customers from around the world expect to have in the application they use. With clients’ patience cutting shorter, the average payment transaction time is also running shorter. Nowadays, for satisfactory service, banks, fintech, digital wallets, and every other app connected to digital finance need to have a competitive edge, and speed is a very nice way to achieve it. 

To prove the overall positive dynamics of real-time payments, we can turn to the numbers. The forecast by ACI Worldwide acknowledges the astounding progress of RTP in the form of 16.7% CAGR and estimates the market value to reach USD 575.1b. 

In this article, I would like to explore the reasons why real-time payment is so popular and how businesses can leverage it for their own benefit. I will discuss the definition of this technology, its benefits, and challenges, and then present you with a short guide for its implementation.

What are Real-Time Payments?

Real-time payments, or RTP, are the type of instant payments that are being processed non-stop 24/7. RTP meaning essentially cuts close to the difference between them and other payments, and real-time transfer stands out by not taking hours or days to complete. They function quickly and effectively, transmitting money from one account to another in mere seconds. This is why they are spreading so fast.

Generally speaking, these are the fundamental characteristics of RTP United States:

• Immediate fund transfers;
• 24/7 availability;
• Support both debit and credit transactions;
• Interactive payment requests are possible.

Their speed is what makes them grow faster. RTP has been used most extensively in the Asia Pacific region, with China and India being the top countries to turn to real-time payments. USA RTP is becoming more popular as well, with the states being the fifth country on the list to use RTP the most.

Real-Time Payments vs ACH

First, let’s figure out what an automated clearing house (ACH) is. I have encountered it several times in my practice, and to put it simply, it’s a network for financial transactions that works in the United States. The workflow is simple: it starts with processing the electronic payments and debits as direct deposits, payments, and preauthorized transfers. The transactions are processed in batches and can take between one to three business days to finalize.

Automated clearing house has several characteristics that differentiate it from other payment types, such as:

• Batch processing: transactions are grouped together and processed in batches.
• Longer processing time: takes 1-3 business days to complete.
• Cost-effective: lower fees compared to other payment methods.

So, in essence, what lies in the comparison of real-time payments vs ACH is the fact that an automated clearing house collects many payments to be processed, while RTP United States processes each transaction individually. This is what makes it faster. 

How Do Real-Time Payments Work?

With the wide adoption of RTP and instant payments, I have thought of the backrooms of product development and how we rarely know how many of the everyday processes we utilize in our lives work. The workflow of RTP United States is generally easy to understand. However, there is much thought and consideration put into the implementation of this technology and the assurance of its proper work.

#1 Initiation

When customers decide to send money, they fill out the form using their personal information and the amount for the transfer. This initiates the payment, starting the process. 

#2 Authorization 

The next step is for the bank to authorize the transaction and send a request to the RTP network for the transfer to be made. 

#3 Routing 

The next step is the RTP network to determine the fastest route for the payment. It happens due to the software receiving the bank information of the recipient and ensuring that the payment is transferred as soon as possible. 

#4 Processing

After the route has been determined, the RTP network processes the information about the payments and ensures its secure transmission. 

#5 Settlement 

Then, the transaction is completed by moving the funds from the customer’s account to the recipient’s account.

#6 Confirmation

The final step is a confirmation when both the receiver and sender get notifications to confirm the successful completion of the transaction. The receiver can access the funds immediately.

Essentially, RTP signifies that this payment type is seamless and fast and is best suited for P2P payments when neither side has vast amounts of time to wait for them to be completed. However, it also works well for business transfers and deposit payments, and the wider it is adopted, the faster new businesses convert to this type of payment. 

Real-Time Payment Examples

As I mentioned before, RTP is becoming increasingly popular. They are gaining global traction and being adopted by many big businesses around the world, with some of them making RTP a cornerstone of their functionality. The USA RTP market is growing rapidly, reaching over 30% CAGR. 

So, I invite you to take a closer look at the global companies that already use RTP payments and achieve incredible results while doing so. 

Venmo

A US-based peer-to-peer payment platform created for fast money transfers between friends and family. Its main functionality includes sending money for shared expenses such as utilities, shared bills, or gifts. In 2023, its revenue reached 2.4 billion USD.

Walmart

Walmart is a retail hypermarket chain based in the US. Nowadays, some of their stores enable real-time bill payments, which allows users to pay bills instantly at checkout. Overall, this improves customer experience and satisfaction since it eliminates the need for checks or mailed payments. 

Zelle

A P2P service, Zelle is, in essence, relatively similar to Venmo. Users use Zelle to send money between bank accounts. Speed is a crucial factor for P2P services, as they are mostly used for birthday gifts, loans, rent expenses, and other personal transactions. RTP enables users to pay faster, manage their costs better, and drive over 100 million users to Zelle. 

PayNow

Based in Singapore, this application also utilizes RTP for personal payments. It uses mobile phones linked to bank accounts, which makes the transaction more automated. RTP can decode mobile numbers and use this information to safely transfer payments from one bank account to another, so PayNow users can make quick online purchases and micropayments for small businesses such as street vendors. 

How to Set Up Real-Time Payments?

Now that you understand how RTP works and what is most needed for an app to integrate with such a technology, I would like to focus on the setup of real-time transfer. This is an important part of integration and can impact the success of the solution. 

#1 Access Business Needs 

Every new integration begins with a hypothesis. Think of something that can greatly change your business, and then consider if real-time payments can cover that need. For example, are you looking for something to improve your cash flow? If yes, then this is your opportunity. 

#2 Join an RTP Network 

If you have a fintech business, you would need to join a network to enable RTP and instant payments. You could choose one based on your business’ size, location, and target audience. Adhere to their security rules and regulations. 

For businesses that just want to integrate with an RTP, your priority would be to find a company that has already joined an RTP network. 

#3 Start the Development 

Before you begin, create a thorough roadmap to identify opportunities for innovative solutions that would include or revolve around RTP. Examples can include push payments, request-to-pay, or account-to-account transfers. To improve the overall solution, you can partner with other fintech or integrate with other services to widen the range of provided services.  

#4 Take Care of the Security 

Your prime priority should be fraud prevention and detection measures for any suspicious activity. Compliance is no less important, so you also should take care of regulatory requirements such as KYC, AML, and others. This will help you in risk mitigation and will preserve your business’ integrity and reputation. 

#5 Inform Your Employees 

Your employees are the backbone of the business, so make sure you have clear strategies for informing them about the processes, systems, customer support activities, benefits, and features of RTP. Ensure that there are enough resources and enable training if needed. 

Benefits of Real-Time Payments

Real-time transfer offers several benefits that can significantly improve the way regular users perform transactions and businesses conduct their work processes. Encountering this payment method in my practice allowed me to understand the benefits better. So, for this article, I have decided to split them into two separate blocks: for businesses and users accordingly. 

RTP Benefits for Businesses

1. Reduced unnecessary costs: transactions for big businesses are often associated with substantial processing costs. RTP payments can cut costs on currency exchange and intermediaries.
2. Enhanced security: real-time payment is encrypted very strongly; hence, combined with real-time monitoring and immediate confirmation, it makes the payment more secure.
3. Improved cash flow management: since the funds are available immediately, 24% of companies receiving RTP payments claimed it had improved their cash flow. 
4. Advanced liquidity management: again, as the payments are immediate, there is no such thing as having the payment stuck in progress. So it enables better liquidity management.

RPT Benefits for Customers

1. Immediate funds availability: It allows businesses to manage their finances and also improves users’ ability to account for the money they receive or send. 
2. Immediate confirmation: the payment confirmation is very stress-relieving and allows users to quickly proceed to other operations. 
3. No bottlenecks: RTP does not have intermediaries, and payments don’t get stuck. Hence it’s not only fast but user-friendly, intuitive, and impactful for customer experience. 

Considerations in Implementation of Real-Time Payments

Despite the technology being so beneficial both for businesses and individual users, RTP payments still have their own challenges, concerns and considerations. It is a natural objective of any solution. However, it’s important to understand them as a business owner. 

I have not encountered a complication related to RTP. However, I know other colleagues who have considered these aspects in their careers. Conversations with them inspired me to add this paragraph to my article, so let’s talk about this as well. 

As consideration for RTP payments, these are the following aspects I would recommend to address: 

• Cross-border payments: When implementing these payments, ensure that you have considered your business’s geographics. It would be much more feasible to enable RTP between EU countries and MENA countries without connecting the two just yet.
• Legacy systems: Many financial institutions are built using legacy systems, and to integrate immediate payments, they would either have to upgrade or create an entirely new infrastructure. This could be quite a challenge; however, if you start the system, try to account for immediate payments immediately. 
• Competition: Despite all of the advantages, real-time payments vs ACH is still a steep competition. USA RTP is popular within the country, however, in 2023, ACH still was at $535.3 billion in value of all the transactions. 

I would not call these considerations challenges but rather aspects to consider when implementing this payment method. It still has many more benefits than drawbacks. Personally, I believe that small and medium businesses would make more profits from implementing it rather than looking at alternatives. 

Conclusion

The conversation about real-time payment is important in 2024. This software can enable users to send money safely and fast, but it can also be seen as one of the mandatory steps towards digitalization. Applications such as Venmo, Zelle, and PayNow prove that this solution is beneficial for businesses and users alike. 

I have covered the majority of aspects associated with real-time payments, and now you should know its benefits, how to set it up, and what it can do for your business. It’s important to go hand in hand with innovation, and even though RTP has been on the market for a while, it is still a novice. There is much to get from this solution, so research and contact us if you feel like this is the next step your business needs to take!