The growing use of real-time payments (RTP) redefines how we understand financial transactions.
The time we associate with business bill payments, bank transfers, and digital payments is about to vanish as payment processing goes the same way as faxing (remember that?)
While the United States and Canada lag behind the likes of Brazil and India (Brazil’s had a value of four times the US amount in 2023), the rise of RTP across the globe is exponential.
A report from ACI Worldwide projects the figure to double to $280 trillion by 2028.
The growing use of real-time payments worldwide
Source: ACI Worldwide
Experts believe we are in the grips of a revolution and, like with all revolutions, the potential for positive change is limitless with new real-time payment use cases springing up all the time.
Real-time payments have the power to transform operational efficiency so that they offer a completely new customer experience and grow revenue simultaneously
But what will this look like for businesses over the next few years? This article is going to find out the answers.
Want to see how real-time payments can grow your business? Contact Berkeley Payments today to find out how our unified payments platform can help you build a robust long-term revenue stream.
What is a real-time payment system?
To recap, a real-time payment system is simply a network that allows the instant transfer of funds between bank accounts.
A form of Account-to-Account (A2A) payment, it focuses on the speed and immediacy of payment.
Two key examples are the Real-Time Payments (RTP) Network in the US and Real-Time Rail (RTR) in Canada.
What is the real-time payments network?
The RTP Network is a major player in the world of "payment rails," which we might view as digital highways for money to travel instantly.
Launched by The Clearing House (an association owned by the US’s largest financial institutions) in 2019, it was responsible for over 50 million transactions in the first quarter of 2023 alone.
It’s not the only player in the RTP game. The Federal Reserve also launched FedNow recently, with higher maximum transfer amounts and lower transaction fees.
Canada's Real-Time Rail (RTR) is another alternative that boasts an even higher transaction limit than the FedNow service, making it ideal for larger transfers.
7 ways real-time payment use cases are transforming the way we do business, according to expert
Imagine a world where "Where's my payment?" inquiries vanish.
Real-time payments (RTP) are about to make this a reality for businesses and customers. Waiting weeks or even a daily option like a same-day ACH (automated clearing house) will become a thing of the past as RTP transfers and settles funds instantly.
Universal instant payments will take out the stress of waiting and the need for regular follow-ups.
Here’s a run-through of the benefits this will bring to all kinds of companies, from corporations to small businesses.
1. A smoother customer experience
Anyone in business knows that customer satisfaction is the oil that smooths the flow of revenue, and how bad reviews can clog this cash pipeline.
Instant payment services (for the time being at least) will be a major competitive advantage in this regard. Depositing an immediate refund into a customer’s account may not just dissipate their anger, but even turn a negative experience into a positive one.
For insurance companies, a same-day payment is a surefire way to build trust with clients and something that most providers can’t currently offer.
Consumers expect speed and convenience nowadays and RTP caters to these on-demand needs.
2. Mobile-friendly payments for a mobile world
Mobile banking is now the way we manage our finances, and RTP slots perfectly into this world of speed and convenience.
The next generation of mobile apps will need to work in tandem with RTP to enable instant transfers and real-time financial management. In short, they’ll want to let users manage their money with a few simple clicks of their smartphone screen.
Jonathon Hamburg, Founder and Executive Vice Chairman of real-time payment provider Berkeley Payments, sums this demand up. “RTP aligns well with mobile-centric consumers who expect convenience and speed with their brand interactions,” he says. “There’s a consumer expectation for actions such as ordering food, paying a bill, or finding directions to all happen in real-time. Companies need to adapt by responding with smarter financial architectures using RTP for immediate resolution”.
3. Minimized fraud risk
Advances in payment technology have brought a heightened risk of fraud as criminals upgrade their capabilities to profiteer from system vulnerabilities.
Multiple manual steps are one of the weak links that RTP removes as it provides instant validations. Fewer manual steps mean less human error and strengthen transaction security.
This peace of mind for both parties is further enhanced with the knowledge that funds aren’t dwelling in some digital no-man’s land between accounts.
Instead, an immediate payment creates a clear audit trail and minimizes the window of opportunity for fraudsters.
4. Enhanced regulatory compliance
Keeping in line with financial regulations is a challenge for most businesses. This is particularly true in the fintech industry where over 60% of US companies paid at least $250,000 in compliance fines in 2023, according to security platform Alloy.
Compliance fines paid by fintech companies (2023)
Source: Alloy
Much of this task, however, is simplified thanks to the infrastructure behind many RTP payment methods.
An RTP payment platform, for example, can offer back-office management services that keep the user within intricate financial rules, freeing businesses from the burden of manual verification and complex paperwork.
This frees up valuable time (and money) for businesses to focus on core operations and growth as regulatory compliance becomes a seamless part of the payment process.
5. Smarter cashflow management
Waiting for payments has often been one of the leading causes of cash flow strangulation. Even after a customer pays, traditional systems can take days to process the funds.
It’s led to cash-flow problems being one of the major causes of start-up failure, according to data from Go Global World, a US venture capital platform.
The major causes of start-up failure (2023)
Source: Go Global World
Real-Time Payments eliminate this wait. With RTP, funds are transferred and settled instantly, giving businesses immediate access to their money.
“Since transactions are “settled up” immediately, the accounting team always knows where they stand in terms of cash on hand”, says Jonathon Hamburg. “Faster payments enable more predictable budgeting for both consumers and companies, as it gives them more liquidity.”
Timely payments are also a cornerstone of trust and reliability in supplier relationships. Faster payments potentially lead to more favorable deals and payment options down the line thanks to a happy supplier.
“A supplier can immediately reinvest the payment from a retailer in raw materials without waiting for the usual bank processing time.” Jonathan points out.
Strong supplier relationships are particularly useful during supply chain disruptions when they may turn out to give the payee a preferred status when receiving limited supplies.
As Wagner Lopes, Head of Growth at fintech software provider Luby, points out “Businesses that offer smooth instant payment will gain an edge over competitors that rely on slower payment methods.”
6. Empowering employees and the gig economy
Freelancers and independent contractors are now vital components of many businesses, especially following the spike in remote working during the pandemic. Yet traditional payment systems often leave gig workers waiting for their earnings.
RTP addresses this challenge by providing instant access to wages. Workers receive their money immediately once they complete the job, which eliminates the frustration of delayed payments.
Earned Wage Access, too, is a system that allows full-time employees to get their salaries ahead of month-end, so they can access the funds they’ve earned up to that point.
The more positive work environment and tighter bond between employers and workers is a key driver in talented worker retention, an important feature in many successful businesses.
7. Cost savings and brand flexibility
Every year, businesses in the US and Canada lose millions in transaction fees as transfers take time and processing to complete.
Add to this the administrative tasks that come with manually managing those payments and we have a sizeable business expense on our hands.
RTP reduces this cost burden. There’s no need for transfer fees as the transaction is instant and their greater efficiency requires much less human labor.
Beyond cost savings, RTP offers unique brand-building opportunities. White-label payment solutions allow non-financial companies to integrate instant payment functionality into their existing ecosystem via a smart API.
This is a big draw for new clients who are much more likely to choose a business that offers faster electronic payments.
What are the risks of a real-time payment system?
The RTP revolution may be in full flow, but with any great power comes great responsibility – and a few challenges to tackle.
One of these will be keeping security and compliance up to speed. RTPs happen fast, meaning there’s less time to catch fraudulent activity. Payment debits are also irreversible from the payer’s end: instead, the financial institution involved must agree to a “Reverse RTP Credit” where they refund the money back to the original account.
The time and cost of doing this means sharp detection needs to be in place to prevent wrongful transactions.
RTP payment service providers, as mentioned, provide robust security measures and quick-moving regulatory updates, but keeping transactions fair and secure is an ongoing challenge.
Businesses must also invest sizeably in new technology and payment infrastructure. Think of it like switching lanes on the highway, a business might need a new map (software) and a tune-up (system upgrades) to make the transition smooth.
On a similar note, RTP systems need to be able to "talk" to each other, like between the RTP network and the RTR, for example. Building this connectivity will take time and effort, but once achieved will dramatically change cross-border payments.
Finally, customers must understand the benefits and potential risks of using RTPs. Like with anything new, a little education goes a long way.
New payment systems always come with new risks, but businesses that can build strong risk management strategies when adopting an RTP system will be able to handle the inevitable hiccups along the way.
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