5 things to know about real time payment processing -  person checking out using NFC and mobile phone

5 things to know about real time payment processing

Friday, November 19, 2021

Real time payments (RTP) are changing the landscape for transactions at all levels. This article will explore what real time payments are as well as everything you need to know about RTPs as more financial institutions adopt this model of faster payments. 
What are real time payments?

RTPs are 24/7 instant electronic funds transfers that can be initiated within a multitude of channels. A requestor of funds can initiate a new payment, and within seconds, funds can be made available in the provided bank account. The initiation can be completed through various technology sources, including smartphones, the web, or tablets. 

Additionally, RTP technology includes the function of providing immediate notification to payers and payees. RTPs allow for financial exchanges beyond the typical hours for financial institutions and banks. Transactions can be implemented on weekends and after hours, or whenever is most convenient for the parties involved. As a result, RTPs have the potential to revolutionize the payment processing field. In fact, some would argue that this has already begun and that RTPs are here to stay. 

What you need to know about real time payments

As RTPs gain traction, there are five important things you should know about this new system in payments innovation. 

1. Real time payment systems were first developed in Japan in the 1970’s. 

While the concept of RTPs first became known in Japan in the early 1970's, the technology did not truly take hold until the large-scale adoption of cell phones and the technical capabilities of high speed data and connectivity. The United States is newer to this type of payment solution and has begun rolling out platforms and technologies to enable RTP functioning. 

The Clearing House launched the RTP network in 2017. In 2019, the Federal Reserve declared that they were in the process of developing an RTP rail entitled FedNow, which is expected to fully launch in 2023. Pilot testing of FedNow began in January 2021, with hundreds of financial institutions testing the payment platform. 

2. There are five categories of real time payments. 

The five categories of RTPs include:

  1. B2B (business to business)
  2. B2C (business to consumer)
  3. B2C (consumer to business)
  4. P2P (peer to peer)
  5. P2P cross border (peer to peer cross border)
Each type of transaction allows for various levels of instant payments. For example, B2B immediate payments tend to be lower and serve to cover the cost of supplier materials. P2P digital payments can be low or high, depending on the repayment or remittance to family or friends globally. Global access to quick and simple financial transactions is key as the world experiences ongoing and increased globalization in economic markets.
 
Undeniably, all types of RTP transactions stand to disrupt and alter the current ecosystem of payments, both domestically and globally. Consumers can receive claims or settlements at a greater speed while also having the opportunity to pay bills or fees with a knowledge of real-time funds availability. 

 

3. The value of real time payments are continually increasing.

One major value add of RTP payments for businesses includes the increased liquidity of deposit accounts and cash management systems. Instead of waiting several days for deposits to settle in bank accounts, RTPs allow instant cash flow. Business owners can better  project financial feasibility over longer periods since actual receivables are accounted for with a real-time picture and snapshot of accounts. 

 

In addition to increased funds availability, consumers have improved transparency and speed for their bank accounts. Receiving payment confirmation allows for assurance that transactions are completed and there becomes a decreased reliance on waiting several days for the posting of charges. Moreover, RTPs allow for increased accessibility to digital payments than more traditional ACH systems. 
 

4. Real time payments increased during COVID-19.

A move toward RTP networks and RTP systems was in process long before the start of the pandemic. However, as the pandemic highlighted the need for digital solutions in financial transactions, RTP systems' usage increased rapidly. 

 

In the spring of 2020, 130 financial institutions were in the process of implementing RTP systems within their provided services. This is an increase of five times the amount from the fall of 2019. COVID-19 expedited the reality that RTP systems were needed and utilized in a changing economic landscape, particularly as suppliers needed immediate payments to secure the exchange of goods and materials. From the consumer perspective, cash purchases have decreased significantly over time, demonstrating a greater reliance on digital payments and digital means for financial transactions. 
 

5. Real time payments processing is one of the fastest developments in the financial industry. 

Because of the increase in the demand for alternative payment transactions and services, RTP is a booming technology that has been launched and offered at a faster rate than other new services or offerings in the financial industry. The speed of automation to financial services and payment methods is best captured by knowing the extent of which accounts have access to this type of payment service. 

 

Notably, The Clearing House has reached 54% of United States demand deposit accounts (DDA), with more to come as additional service providers enter the RTP space. Real time payment networks are set to grow, expand, and become the expected method for payment for consumers across the country and globe.
 

Need a partner to help understand how real time payments can impact your business and money management needs?

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us