We live in impatient times. Consumers and businesses have rising expectations and want to align payments with their busy 24/7 world. While real-time processing helps achieve this goal, it also transforms the way money is managed and provides a strategic platform for disruptive innovation. Let’s see how real-time digital value transfer brings great ideas to life.

Real-time payments – the new money?

The real-time exchange of value has been around as long as money itself. As the original medium of exchange, banknotes and coins facilitated trade for approximately 5,000 years. Being generally accepted and trusted, cash provides certainty of payment and allows business to proceed with relatively little friction.

Paradoxically, as financial markets became interconnected and sophisticated, late payments became the norm. Innovative financial instruments – such as checks and promissory notes – hampered settlement because clearing took time. Likewise, while the introduction of mainframe computers created a new world of opportunity for electronic payments, batch processing dictated clearing times and payments had to be scheduled.

Real-Time Payments (RTP) removes these technical bottlenecks and creates an environment where consumers, merchants and financial institutions can pay friends and customers, settle bills and transfer money immediately, 24 hours a day. /24 and 7/7.

In addition to increasing the speed and efficiency of digital payments, real-time ushers in a new era of contextualized commerce – irrevocable payment can be made exactly where and when it’s needed. This is particularly relevant when transacting online or via an app. Nowadays, a digital experience without instant payment will tend to be lackluster, fail to meet customer expectations, and put a merchant at a disadvantage.

“We have entered a new era of instantiation. Every organization needs to understand the business case for real-time payment and its added value. There are many excellent examples of high value/high impact use cases that we see applied very widely. Real-time payments can be very empowering for consumers and small businesses by improving choice and increasing cash visibility. — Ginny Chappell, Senior Vice President, Digital Payments at FIS

Why the real-time rush?

For consumers, RTP improves choice and provides a convenient new way to transact. Payment can be initiated through one of many channels including smart phone, tablet, and web. Likewise, consumers can receive cleared funds immediately in a bank account, which is much more efficient than paying by check or waiting for the funds to clear through an automated clearing house.

RTP solutions are “open loop”, which means that the payment is linked to a bank account rather than a prepaid balance. This is an important feature because it creates the possibility that payments will reach anyone with a bank account in the United States and beyond. But for RTP to achieve ubiquity, there must be lasting benefits for all parties. So what are the likely use cases?

Strengthening efficiency

RTP brings new efficiency to many existing payment processes. Although consumers may already believe that their funds are being sent and received in real time, some payment methods can take days to reach recipients and settle in their accounts. This can be confusing as bank account balances may not be up to date. RTP provides certainty and brings clarity to cash management, with up-to-the-minute transaction histories and real-time account balances.

RTP can improve people’s lives in many ways. For example, the proceeds from the sale of a house or the cashing in of investments are available immediately. In an online world, people can load money into a broker account, trade stocks immediately, and precisely monitor cash positions in real time.

Foster innovation

However, RTP also creates entirely new opportunities. Take the case of peer-to-peer carpooling. Without real-time payment, customers could pay by card, but this transaction could take days to clear and for the funds to reach the recipient. RTP removes friction and bridges the gap between a company, its customers and its employees. In this case, the company is paid immediately, the employee is paid faster and everyone is happy.

Turn transactions into relationships

Another important feature of real-time payment is the ability to support messaging between payer and payee, such as:

· Payment request

Acknowledgment of payment

Transfers (or “push payments”)

Remittance advisory services

These innovations allow a payer and a beneficiary to include additional and flexible information to enrich payment, increase transparency and build dialogue. In practice, real-time processing creates a payments ecosystem, where financial institutions, merchants and customers can exchange information to increase efficiency, create value and do things differently.

Business Benefits

With RTP, businesses can receive funds faster, improving forecasting and cash management. This is especially crucial for small businesses where cash flow and liquidity management are paramount. The pandemic has highlighted the importance of liquidity, access to funds and cash flow management. With a real-time picture of its cash position, a small business can be confident it is meeting short-term commitments, minimizing borrowing, and maximizing the use of excess cash.

But large companies also benefit, especially when there is a long supply chain or cross-border payments. With real-time payments, cash can be accurately managed, working capital management optimized, and payments choreographed using electronic invoices or payment request capabilities.

Many companies will seize real-time payments as an opportunity to increase transparency and modernize payment processes, which often revolve around checks and the five-day week of automated clearinghouses. For example, employers can pay contractors in full as soon as the work is completed. With about 9%[1] of American adults currently or recently employed as gig workers, immediate payment is increasingly important. Real-time payments make on-demand payroll a practical reality and everyone benefits from increased flexibility and convenience.

The road to real time

After many discussions, RTP moves from theory to practice. The world has entered a new era of “instant” and payments are at the center of attention. Recent search[2] suggests that the US market is approaching a tipping point. More than 60%[3] American banks are already connected to the RTP network. With over 5,000 banks in the country, this shows great progress, but those who ignore the RTP will be left behind.

As today’s innovations quickly become tomorrow’s business benchmark, the race for real time is real.

[1] https://www.pewresearch.org/internet/2021/12/08/the-state-of-gig-work-in-2021/

[2] FIS, Real-Time Innovation – a new wave of payments innovation

[3] FIS report, Innovation in Real Time – a new wave of payment innovation, Summer 2021