Real-time Payments are accelerating the speed, innovation, and efficiency of digital payment systems, as well as redefining the future of payments.
The pandemic has boosted demand for faster transactions and better digital payment solutions across industries. Contextual commerce is becoming increasingly popular, allowing customers, workers, merchants, and suppliers to conduct business more efficiently and in line with their 24/7/365 lifestyle.
What are real time payments?
Real-time payments, also known as instant or Immediate Payments (IP), are the ability to transfer funds between individuals, businesses, and governments instantly.
Real-time payment systems offer safe, secure and instant, 24/7 interbank electronic funds transfers. They can be initiated through smart phones, tablets, digital wallets and on the internet.
The growth potential of the real-time payment industry and the global disruption it is producing are enormous. In 2020, the global real-time payments industry was estimated to be worth $10.64 billion. From 2021 to 2028, it is predicted to increase at a compound annual growth rate of 33.0 percent.
Legacy methods can take days to reach a recipient. But real-time payments enable speedier payouts and a more consistent manner of payment. With real time payments, consumers, businesses, and world governments are positively affected socially, culturally, and economically because it offers much more seamless method of financial transactions.
The Impact of COVID-19 in Real -Time Payments
Even before the COVID-19 outbreak, consumer-driven changes in the payments world were taking place. The epidemic, on the other hand, has accelerated the use of digital and real-time payments around the world as a strategy to keep consumers safe and businesses running.
COVID-19 has also caused consumers and businesses to reconsider the use of cash. In 2015, just 14 countries were capable of having real-time payments. Even today, only 56 countries have enabled real-time payments, accounting for less than a third of the world’s nation. The adoption of real-time payments is affected by the fact that financial markets around the world are at various stages of maturity.
Types of real time payments
There are three different types of real-time payment mechanisms:
- The traditional approach or the Instant bank transfers that use account numbers
- RTP transfers from one bank account to another using an alias, such as a mobile number or a unique ID.
The reality of real-time payments
Payments made with credit or debit cards, digital wallets, or P2P apps may seem like real-time payments, but what happens is different. The fund transfer in these payment methods are not processed right away. Credit and debit card transactions are processed by a bank, which can take up to 72 hours to clear and settle.
With real time payments, there is no ‘float’. ‘Float’ means the time between when funds leave the payer’s account and reaches the payee’s account. In real time payments, payments are accepted 24 hours a day, 365 days a year, and the most convenient matter is that it is immediately available.
Many digital wallet transactions are not truly real-time payments because they involve non-bank money transfers between personal wallet accounts rather than bank accounts. Same-day and next-day payments can be processed through online transactions conducted through a clearing house payments company or
the Automated Clearing House (ACH) system. However, payments are cleared in batches. So, money are not available until the settlement procedure is completed and the payments are cleared.
The benefits of real-time payments
Real time payments offer a great deal of benefits for financial institutions including:
- Increased revenue through increasing consumer spending.
- Reducing payment costs and giving greater value services to consumers
- Reducing fraud and risk management
- Improving long term customer relationships
- Engaging new consumer segments
- Enabling innovative new product offers to customers and stay competitive.
Moreover, real time payments help businesses with the much needed cash flows. Adequate cash flow improve operational efficiencies, budgeting, and overall cash management of the businesses.
This growing preference for efficient real time payments among businesses is predicted to drive the market growth. In fact, according to a survey conducted by ACI Worldwide, 77 percent of businesses expect real-time payments to eventually replace physical payment cards.
Who can use real time payments?
Real time payment system is available to consumers, corporations, and government bodies etc. RTP transactions were created with the goal of facilitating speedier payments across all payment types, including:
- Business-to-business (B2B);
- Business-to-consumer (B2C);
- Consumer-to-business (C2B);
- Peer-to-peer (P2P);
- Government-to-citizen (G2C);
- Account-to-account (A2A)
As more and more businesses, consumers, and municipalities embrace digital payment methods, many financial institutions around the world are utilizing the RTP network’s capabilities to create faster and safer payment processing services.
Building the future of real-time payments
The success of real-time payments in the future will be determined by how fast and efficiently banks and financial institutions can standardise their RTP network ecosystem globally. It will also be determined by the kind of value added services and RTP-related benefits available to clients. The following are some of the most important factors to consider:
- Investing in better Infrastructure: Developing a reliable real-time payments platform will put a bank’s existing infrastructure and transaction processing capabilities to the test. To handle these transactions, banks will need to improve their infrastructure.
- Integration: To prevent losing out to fintechs and specialised merchants, banks should begin integrating with RTP systems as soon as possible.
- Modernization: Banks and financial institutions must update their systems to allow for easy API integration, the creation of user-friendly payment apps, and other features.
- Connectivity issues: Regulators will need to integrate offline payments solutions to increase adoption in rural or remote areas that have connectivity constraints.
- Focusing on the customer. The digitization of the customer journey, quick onboarding, transaction security, integration, and omnichannel accessibility are all opportunities to make the customer experience seamless and intuitive.
Complexity is simplified by real-time visibility.
With digital transaction volumes booming, new payment technologies to accommodate, and customers demanding a seamless payments experience, everyone in the payments space has more complexity to contend with than ever before.
Real time payments brings real-time visibility to your entire payments environment. It unlocks unparalleled insights into transactions and trends, streamlining the payments experience, from end-to-end.
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