Real Time Payment Solutions for a Faster Financial Future

Real-time payment solutions are revolutionizing the way we make and receive payments. They enable instant transactions, reducing the need for cash and checks.

According to the article, real-time payment solutions are designed to settle transactions in seconds, not hours or days. This is made possible by advanced technologies like blockchain and APIs.

Real-time payment solutions are not just faster, they're also more secure. They use robust security measures like encryption and two-factor authentication to protect sensitive information.

By adopting real-time payment solutions, businesses can save time and money on transaction fees and processing costs.

Real-time payments are truly instantaneous, with no interval between when funds are deducted from the payer's account and made available to the payee.

Faster payments, on the other hand, can take anywhere from a few minutes to a few hours to complete, and are always credited by the end of the following business day.

Real-time payments are not the same as faster payments, although all real-time payments can be considered a form of faster payments.

Faster payments solutions, such as Nacha's Same Day ACH, post and settle payments faster than traditional payment rails, but faster does not mean instantaneously.

Real-time payments offer a wide range of potential use cases that can benefit both individuals and businesses.

Real-time payments can be used for instant payroll processing, loan disbursements, and merchant payouts, allowing employees or customers to receive payments immediately. This is particularly useful for gig economy payments, which can also benefit from RTP.

RTP can be used for various financial transactions, including person-to-person (P2P), government-to-consumer (G2C), business-to-consumer (B2C), and business-to-business (B2B) payments.

Here are some potential use cases for real-time payments:

Real-time payments can also be used for emerging B2B use cases, such as instant bill payment and remittance data availability.

Implementing real-time payments requires careful consideration of several aspects. Cross-border payments, for instance, need to be enabled between countries that have a more feasible connection, such as the EU and MENA countries.

To set up real-time payments, banks must modernize their existing payments architecture. This includes investing in a platform capable of supporting real-time payments processing and back-office operations.

Legacy systems can be a challenge when implementing real-time payments. Many financial institutions are built using legacy systems, which would either have to be upgraded or replaced with an entirely new infrastructure.

Real-time payments vs ACH is a steep competition, with ACH still holding a significant value in 2023. In the USA, ACH was at $535.3 billion in value of all transactions.

To implement real-time payments, banks need to enable existing digital touchpoints, deliver value-added services, and provide a gateway or endpoint to the central scheme.

Here are some key considerations for implementing real-time payments:

P2P payment apps have become increasingly popular, with 54% of consumers using PayPal within the past year, up from 47% in 2017. This trend is expected to continue, with 14% of consumers using Venmo in 2020 and 13% using Zelle, up from a mere 1% in 2017.

These apps have integrated with The Clearing House's RTP network, allowing for instant transfers from the app to a bank account. For instance, instant transfers routed through the TCH RTP network became available on PayPal's Venmo in August 2019.

Here's a breakdown of the popularity of P2P payment apps:

ACH, or Automated Clearing House, is a network for financial transactions in the United States. It processes electronic payments and debits as direct deposits, payments, and preauthorized transfers.

Transactions are processed in batches, which can take between one to three business days to finalize. This is a key difference between ACH and other payment types, like real-time payments.

ACH has several characteristics that set it apart, including batch processing, longer processing times, and cost-effectiveness. Lower fees compared to other payment methods make ACH a popular choice for certain types of transactions.

Here are the key features of ACH payments:

In short, ACH payments are a reliable option for transactions that don't require immediate processing, like payroll and direct deposits.

RTP stands out for its instant settlement time, making it a great option for those who need funds to move quickly.

The costs per payment for RTP are in the range of $0.25 to $1, which is relatively low compared to other methods.

ACH payments, on the other hand, take 2-3 business days to settle and cost between $0.20 and $1.50 per payment.

Same-Day ACH payments are faster, taking only the same business day to settle, but cost more, ranging from $1 to $5 per payment.

Wire Transfers are the fastest, settling within minutes, but come with a higher cost, ranging from $25 to $50 per payment.

Here's a comparison of the payment methods:

The costs and settlement times for each method vary significantly depending on factors like your bank, transaction volume, and average transaction size.

Routing is a crucial part of the real-time payment process, and it's handled by the RTP network. The network determines the fastest route for the payment by receiving the bank information of the recipient and ensuring the payment is transferred as soon as possible.

Here's a step-by-step breakdown of the routing process:

In summary, the RTP network plays a vital role in routing payments quickly and efficiently.

Technology providers play a crucial role in helping banks connect to the RTP network. Banks typically work with a technology provider to streamline the process.

FIS, Sherpa Technologies, PayFi, ACI Worldwide, Fiserv, Volante, Jack Henry, and Alacriti are some of the providers that have made integration with the RTP network happen. These providers have been instrumental in making this integration happen.

Enabling these providers can effectively enable all the banks that use them, according to Matt Richardson, Head of Product Solutions at Citizens Bank.

P2P payment apps have become increasingly popular, with many consumers using them to split costs or send money to friends and family. In fact, 54% of consumers have used PayPal within the past year, up from 47% in 2017.

The rise of P2P payment apps has led to the development of real-time payments, which enable instant transfers between apps and bank accounts. This is thanks to partnerships with The Clearing House's RTP network, which allows for instant transfers.

For example, Venmo, a popular P2P payment app, integrated instant transfers with the TCH RTP network in August 2019. This allowed users to transfer money directly to their bank accounts.

Zelle, another popular P2P payment app, also joined the RTP network in 2021, enabling instant transfers between users' bank accounts.

The benefits of P2P payment apps are clear: convenience, speed, and ease of use. With the ability to send money instantly, users no longer have to wait for days for funds to clear.

Here are some key statistics on P2P payment app usage:

These statistics demonstrate the growing adoption of P2P payment apps and the potential for real-time payments to transform the way we send and receive money.

Businesses of all types can benefit from real-time payments, which offer numerous advantages. Real-time payments can satisfy growing consumer demand for instant access to funds and more convenient electronic payment options, thereby enhancing the customer experience.

Companies can expedite the refund and disbursement processes, providing individuals with greater visibility into their financial situation, reducing the risk of overdraft fees and similar penalties. This can also offer businesses greater liquidity, visibility into accounting, and better overall cash flow management.

Real-time payments can reduce operational costs by either paying lower credit card interchange fees or bypassing interchange fees entirely. They can also increase payment security by enabling bidirectional communication within a secure system and introducing two-factor/multi-factor authorization, device binding, and confirmation mechanisms.

Here are some key benefits of real-time payments for businesses:

FedNow is an interbank round-the-clock real-time gross settlement service with integrated clearing functionality. This means it's designed to enable financial institutions to deliver faster payment services to their customers.

The United States already has two existing real-time payment systems, but FedNow is the third one in development. It's expected to be launched by the Federal Reserve in 2023, with an official pilot program that began in 2021.

FedNow has an enhanced gateway that supports system connectivity, making it easier for financial institutions to connect with it. This will help facilitate faster payments across the country.

To determine if real-time payments (RTP) make sense for your business, you need to identify the specific needs that RTP can address.

Every new integration begins with a hypothesis, and for RTP, that hypothesis is often centered around improving cash flow. According to a survey, 24% of companies receiving RTP payments claimed it had improved their cash flow.

Before deciding if RTP is right for your business, consider the value it can deliver beyond just dollars and cents. Improved customer satisfaction is a potential benefit of RTP, as the ability to make and receive payments instantly enhances the customer experience.

To make an informed decision about RTP, evaluate your current payment processes and identify pain points. For example, if you're experiencing issues with delayed payments or high processing costs, RTP might be a good solution.

Here are some potential business needs that RTP can address:

More than 460 banks participate in the RTP payment system in the US. This number is constantly growing as new financial institutions agree to participate.

RTP coverage is around 70% of financial institutions, making it a widely available option. This includes many notable banks such as Bank of America, CitiBank, and PNC Bank.

Some notable banks that participate in RTP include American National Bank, JD Bank, and Citizens National Bank. These banks, along with many others, offer RTP as a convenient payment option for their customers.

Here's a list of some notable banks that participate in RTP:

Local credit unions and banks also participate in RTP, including State Bank of NW Missouri, Jacksonville Fireman Credit Union, and Indiana University Credit Union.

COVID-19 had a profound impact on the adoption of real-time payments. The pandemic accelerated the growth of real-time payments globally.

In the US, over 130 financial institutions were in the process of implementing real-time payments, a five-fold increase from September 2019. This rapid growth highlights the increased demand for fast and secure payment solutions.

The pandemic also led to a significant increase in real-time payments adoption in other countries. By 2020, 56 countries had a live real-time payments rail, up from 14 countries just six years ago.

India boasted the largest real-time payments market by volume, with 41 million payments per day. This is a testament to the country's growing digital economy and increasing demand for fast payment solutions.

The Philippines saw the highest annual percentage value growth, at 482%, while Bahrain saw the highest annual percentage volume growth, at 657%. These numbers demonstrate the potential for real-time payments to drive economic growth and innovation.

Here's a snapshot of the countries with the largest real-time payments markets by volume:

Gig economy workers can now earn extra money quickly, thanks to instant payouts in ride-share apps. They can select "Get paid now" in the app and receive the funds in their bank account for a small fee.

Ride-share app drivers work long hours, providing multiple rides, and instant payouts help them cover unexpected bills. For example, they can work four hours and earn 15 rides before choosing to get paid immediately.

P2P services like Zelle allow users to send money between bank accounts, and speed is a crucial factor in these transactions. Users can pay faster and manage their costs better with Zelle, driving over 100 million users to the service.

Instant payroll payments are also a game-changer for workers, providing greater financial flexibility. Retail workers can receive their paychecks instantly, without having to wait two or three days for the funds to process.

Refunds and warranties with real-time payments can be a game-changer for consumers. Imagine being able to receive a refund or warranty payment in your account immediately, rather than waiting weeks or days for a check or ACH to process.

Manufacturers can use real-time payments for refunds and warranties, especially for larger-ticket items. This can be a huge advantage for consumers who need to replace a broken product quickly.

For example, if you purchase a stove and it stops working after two months, you can contact the manufacturer and have money in your account to purchase a replacement immediately.

Real-time payments are transforming the way businesses make transactions, and B2B payments are no exception. The speed and convenience of RTP are ideal for times when money needs to be transferred fast, such as in emergency fundraising following a disaster.

A manufacturer who needs parts to build a toy can send a request to their supplier, who delivers the parts a few days later. Upon arrival, the toy manufacturer immediately sends payment to the supplier using RTP, saving time on processing and reducing accounting costs.

The adoption of RTP in the US and the launch of Fednow are leading to a shift in the payment landscape. As the adoption of newer payment rails increases, there are likely to be even more use cases and platforms than we can currently imagine.

Companies relying on outdated manual processes to make B2B payments are now finding motivation through the RTPs available on P2P apps. 60% of respondents surveyed by the Association for Financial Professionals (AFPs) for its 2019 payments study said that B2B transactions will benefit the most from faster and RTP systems.

Here are some B2B use cases and perks for RTPs:

RTP was first launched in 2017 and is the newest electronic bank payment method available today.

The RTP network was created to address the shortcomings of ACH and Wire Transfer. ACH takes at least one business day to move funds, creating risk and uncertainty for all parties in a transaction.

RTP increases the speed of bank transfers in a cost-effective manner, reducing transaction risk by eliminating payment reversals and returns.

The RTP network is managed by The Clearing House, a membership organization owned by all the major US banks. Any federally insured depository institution can join the RTP network.

As the adoption of newer payment rails increases, there are likely to be even more use cases and platforms than we can currently imagine. RTP is likely to expand into new areas, including home equity line of credit (HELOC) disbursements and merchant customer service payments.

Customers want more payment options, and the future of payments is going to be faster and multi-rail.