After you’ve fulfilled your end of the transaction, you want and need to receive funds as quickly as possible; however Automated Clearing House (ACH) payments can take hours or even days to clear. In today’s digital era, waiting for funds to become available is quickly becoming a thing of the past. This is where advanced digital payments and enterprise payment solutions come into play.
Automatic real-time payments (RTP) provide the ability to initiate and transfer funds between businesses, governments, and individuals almost instantly. Let’s take a deep dive into what real-time payments are, how these payments are processed, and the benefits both the payee and the payer receive.
Real-Time Payments Explained
Using payment rails based on digital infrastructure to move money in real time, RTP are payments that are initiated, cleared, and settled within seconds of the purchase. Ideally available 24x7x365, the caveat for financial institutions is that their backend systems need to be always available.
An inter-bank, fully electronic payment system, RTP facilitates transferring irrevocable funds from one bank account to another at lightning speed. It combines immediate funds availability, settlement finality, instant confirmation, and integrated information flows within a payment that happens in real time. Let’s look at the inner workings of RTP.
The RTP process is rather simple and can usually be completed in 5 steps.
- The payor initiates a funds transfer from their account to the payee’s account.
- The payer’s financial institution verifies the transaction and authorizes payment, providing it’s legitimate.
- The transaction is sent to a real-time payment platform, which again checks the legitimacy of the transaction before approving or rejecting the transaction.
- If the transaction is approved, funds are immediately transferred to the payee’s bank account.
- The payer receives notification that the transaction is complete.
The entire process takes place seamlessly and immediately, providing for frictionless payment processing.
The Value of Real-Time Payments
Spanning both the payee and the payer, RTP provides significant advantages.
- Increases cash flow: Since payments happen nearly instantly, the steady stream of cash reduces cash flow bottlenecks and eliminates pending transactions that tie up capital.
- Improves customer service: An Ovum and ACI Worldwide survey found that 84% of regional merchants, retail banks, and billing organizations anticipate customer service improvements from RTP.
- Provides a real-time view of cash position: Provides the ability to better meet short-and long-term financial commitments, minimizes borrowing, and optimizes the management of working capital. Additionally, with improved cash positioning potential investors, partners, and acquiring businesses will view the company as one with strong financial holdings.
- Enhances financial management and forecasting: Increased visibility into finances provides the ability to improve forecasting and cash management.
- Reduces or eliminates revenue leakage: Since payments happen immediately and seamlessly, errors that take place when handled manually are all but eliminated.
- Promotes global growth: Given the global reach of RTP, handling international transactions becomes a seamless process.
- Builds payee/payer trust: The transparency of the payment process and the ability to include information with the payment helps to improve payee confidence by eliminating payment doubt.
- Reduces payment failure: Payers are prohibited from sending money that is not available.
- Decreases the risk of payer fraud: Since RTP clears almost immediately and transaction confirmations are sent automatically to the payee, payer fraud – retracting the payment – is virtually eliminated.
- Eliminates many transactional fees: Since funds need to be available before the transaction is approved, fees such as late and overdrafts are eliminated.
- Provides payment flexibility: Allows for emergency or last-minute payments.
While RTP provides a myriad of benefits, where many of them help to maximize profitability, there are some challenges and constraints. For instance, as previously mentioned the payee and the payer’s financial institution must be part of the RTP network.
Since transactions are initiated and settled immediately, errors cannot be corrected once the payment is sent – making payment vigilance a necessity. Additionally, since transactions are processed and transmitted over digital networks, cybersecurity is a growing concern. Given the opportunity, bad actors can exploit weaknesses in the systems, devices, or protocols in an attempt to intercept, alter, or redirect funds.
To reduce the chance of breaches, the payee and the payor need to implement advanced security measures like authentication, encryption or leading-edge enterprise payment solutions.
Future-Proof Your Enterprise Payment Solutions While Growing Your Revenue
While still a relatively new payment method, RTP is on an upwards trend. Companies are recognizing the value of RTP and are actively pursuing it as a payment option. Citizens Bank’s Annual Real-Time Payments Outlook learned that approximately 90% of business leaders are interested in RTP. Or conversely, only about 9% of respondents have no plans to implement RTP. Even more telling is the rate that RTP is expected to grow over the next 7 years. Valued at $17.57 billion in 2022, the global real-time payment market size is expected to grow at a compound annual growth rate (CAGR) of 35.5% between 2023 and 2030.
As RTP continues to advance and evolve, the enterprise payment solutions that support it will also expand. Quickly becoming an integral part of the payment industry, it’s with growing anticipation that we expect to see an increase in globalization, innovation, customer demand, and regulatory support.
Future-proof your organization with enterprise payment solutions that are built for tomorrow’s requirements. BillingPlatform’s cloud-based solution provides a flexible and scalable platform that delivers the interoperability, extensibility, seamless ecosystem connectivity, processing power, and the security you need. Take a 9 minute guided tour of our solution to see for yourself how!