Did you ever need money fast? If so, you know the pain of waiting for a transaction to clear. Most electronic transactions take three days to complete: one day to initiate, one day to process, and one day to post to your account. As of several years ago, though, we have a much faster way to move money around: real-time payments.
Want to know more about real-time payment technology? Here is how it came to be, its advantages and disadvantages, and what we can expect from it in the future.
What Are Real-Time Payments?
Real-time payments arrived in the U.S. in 2017, when The Clearing House introduced the digital infrastructure capable of processing instant transactions. All of a sudden, regular consumers were able to shop and pay bills online almost instantly rather than having to wait three days for their transactions to complete.
Pretty soon, real-time payments became a popular feature of Venmo, Cash App, and other person-to-person (P2P) payment apps. Other than being instantaneous, real-time payments made it easier for businesses to issue payroll, pay contractors, and receive payment in a simple and transparent way.
Pros and Cons of Real-Time Payments
As mentioned, the main advantage of real-time payments is their efficiency. When funds that are sent to you and the payments you make are instant, managing your cash flow becomes much easier and more predictable. Plus, instant payments eliminate the need for many paper-based operations, making real-time payments a more cost-effective option as well.
Implementing real-time payments also allows your business to stay up-to-date with the latest trends. This is particularly important for businesses that operate globally, as real-time payments are a critical next step to make the transaction process as seamless as possible.
The main disadvantage of real-time payments is the implementation cost. Businesses may need to make big system changes to adjust to instant payments, which can result in major investments. The only other disadvantage to note is that settling transactions instantly gives you little to no time to correct errors in the payments you send.
The State of the RTP Industry
Since the U.S. is lagging in implementing real-time payments, there are only two key players in the industry so far: The Clearing House’s RTP and the Federal Reserve’s FedNow.
The TCH RTP network is much further ahead in delivering efficient real-time payments. It allows for both B2B and P2P real-time transactions, payroll transfers, Request for Pay (RfP) payments, and more. If a bank wants to connect to the RTP network, it will need to work with a technology provider such as PayFi, FIS, Fiserv, ACI Worldwide, Volante, and so on.
The FedNow service is still in its pilot stage and is expected to have its official launch in 2023. The pilot program consists of over 200 processors and financial institutions that support the testing and development of FedNow. These processors include ACI Worldwide, Finxact, Fiserv, Jack Henry, Finastra, and Shazam.