Real-time payment processing is fast becoming a vital part of the world economy and is known by many names like Faster Payments, Immediate Payments, Instant Payments, or Fast Money. So what are real-time payments? Well, it’s composed of technology that enables instantaneous money transfer between banks and banking systems.
The first real-time payment processing system popped up back in 2001 in South Korea, and within the following decade, real-time payments technology popped up throughout the UK and parts of Asia. We here at the Zed Network specialize in providing real-time cross-border payment processing solutions for multinational operations. So we know all there is to know about real-time payment processing, and we thought we should let you see the impact of these payments in the world.
According to Zed Founder and entrepreneur Alan Safahi, the best thing about real-time payments is that it doesn’t have any “float,” which is the interval between when money goes from the payer’s account and becomes available in the receiver’s account. One of the reasons real-time payment processing services are so popular is that it allows everyone to make payments 365 days a year and the funds are available immediately.
While it may seem like payments made with credit or debit cards, digital wallets, or P2P apps are real-time payments, it usually isn’t the case. That’s because, for these payment processors, the payments aren’t processed right away. For example, credit and debit card transactions can take up to 72 hours to clear and settle as they go through a bank settlement process. In contrast, digital wallet transactions aren’t considered real-time payments because these are non-bank money transfers and the transactions occur between personal wallet accounts.
While transactions made through the Automated Clearing House (ACH) system can process same-day and next-day payments. However, these payments are cleared in batches. That means the funds are not available until the settlement process is complete and the payments are clear. So now that you know what real-time payments are, let’s check out their impact on the economy!
The Impact Of Real-Time Payments In The US
The Clearing House is the first organization that brought real-time payment processing when it launched its RTP® (Real-Time Payments) Network. With its launch, it became the first new payments system in the US in 40 years. It was created so that all federally insured depository institutions can use it to clear and settle payments in real-time. In addition, the network was created to serves as a platform that allows banks and other financial institutions that they can utilize to develop and deliver new innovative products and services to their customers.
The Clearing House claims that they are already connecting over 50% of all demand deposit accounts, such as checking accounts in the US and are expected to reach nearly all US accounts in 2020 through the RTP Network. There are several benefits to using RTP technology. Here are some benefits for you to check out:
- It allows you to send and receive payments around the clock, seven days a week, 365 days a year.
- It allows people to initiate payments from their existing accounts. There is no need to set up a separate funding account.
- It allows you to receive payments within seconds of the sending bank initiating the transaction.
- It allows you to manage cash flow more easily.
Everyone from consumers, businesses, and government entities can use the RTP network for all types of payment processing needs. With the RTP technology, you can facilitate payments across all payment categories, they are:
- Business-to-business (B2B),
- Business-to-consumer (B2C),
- Consumer-to-business (C2B),
- Peer-to-peer (P2P),
- Government-to-citizen (G2C),
- and Account-to-account (A2A) transactions.
As time goes on, more and more businesses, consumers, and municipalities will start embracing digital payments, leading to financial institutions all across the country utilizing the RTP network’s capabilities and creating faster and safer payment processing services.
The FedNow Service
Another real-time payment processing and settlement service are the FedNowSM. The Federal Reserve created it, and the service will incorporate clearing functionality into settling payments. The real-time payment processing service allows banks and financial institutions to exchange the debit and credit information needed to process payments and notify customers whether the payments were successful. Now, the FedNow service isn’t fully up yet, with its still on beta testing. However, it is expected to go live in 2023 or 2024.
Impact Of Real-Time Payment Processing On Businesses
The impact of real-time payment processing can be seen on a business’s cash flow. It’s known to improve budgeting, financial projections, and overall cash management. Real-time payment services are also known to improve operational efficiencies and boost customer engagement and satisfaction. One Ovum and ACI Worldwide survey back in 2018 found that 77% of merchants surveyed across the globe expect real-time payments to replace physical payment cards eventually. Here are some of the things that the survey revealed:
- Worldwide, 51% of all merchants, billing organizations and retail banks were expected to increase their IT budgets for payments-related projects in 2018.
- Real-time payment processing is now central to planned customer service improvements for most merchants, retail banks, and billing organizations.
- More than three-quarters of organizations expected or experienced customer service gains from real-time payments.
- Worldwide, 68% of merchants, 72% of billing organizations, and 78% of banks predicted that the combination of real-time payments would decline the importance of payment cards over time.
Integrating real-time payments has many benefits like increased speed in transferring money, improved cash flow, and minimizing fraud exposure. However, even with overwhelming data show beneficial real-time payments can be. According to Safahi, US businesses have been slow to embrace the model. Here are some reasons why real-time payment processing has been slow in the US:
- A limited number of banks and other financial institutions can currently send and receive real-time payments.
- There is uncertainty within the payments industry about which real-type payment system will prove to be the most successful.
- The cost of investing in new technology is high to switch from batch processing to supporting real-time payment processing.
- There is a lack of awareness and information.
- There are low business transaction limits.
The Future Of Real-Time Payment Processing
According to Safahi, the real-time payment models will continue to exist side-by-side with existing payment systems for the foreseeable future as fintech companies worldwide continue to innovate new ways to make payments. However, we don’t think real-time payments will replace payment models that currently serve a specific function like scheduled payroll payments made via direct deposit ACH money transfers.
But businesses may integrate instant payments to pay suppliers when goods or services are delivered. As time goes on, experts believe that services like wire transfers, credit and debit cards, prepaid cards, digital wallets, and person-to-person (P2P) applications like Venmo, real-time payment technology will continue to evolve.
With two real-time payment processing services in play now in the economy, the service’s popularity is poised to grow significantly in the coming years as both consumers and businesses begin to understand the benefits of having one more payment option. As you know already, the benefits of real-time payment processing services are plenty.
With benefits like improved cash flow, simplified money management, reduced chance of fraud, and the peace of mind that comes with knowing that money transfers happen instantaneously offer something that’s been missing from the financial world till now. So there you go, those are the impact of real-time payment processing in the real world. As you can see, the story of real-time processing is still growing and will continue to grow for the foreseeable future as the world catches up to the technology.
Now, if you want to be ahead of the curve in your niche, then integrating real-time payment processing layers is the way to go. That’s where Zed comes in. Our specialty is creating highly effective real-time payment processing and orchestration layers that optimize your money flow along with providing the perfect infrastructure for real-time cross-border payments. So if you need real-time payment processing solutions or want to know more about the technology, then get in touch with us!
Also, if you have any other questions regarding payment orchestration and solutions, then drop them in the comments below or hit us up on our socials, and we will answer them for you. So make sure you send us all your queries and feedback. And with that being said, that’s about all we have for you today. We will come back with something new for you soon. Until then, see ya!