Mobile and digital technologies were pushing the U.S. towards faster and more secure payments even before most of us were sent home in March. That move to home clearly underscored another rapidly emerging push – the need for business payments transformation. We’ve also seen an accelerated interest in the move to real-time payments in the U.S., as businesses demand faster electronic payment options from their banks.
Although still a relatively new payment method for businesses, we’ve been using faster payment platforms in our personal lives for years – Venmo and Zelle, for example, have gained popularity as nearly instant ways to purchase goods and services or reimburse family and friends.
But what ARE real-time payments, aside from being faster? To start, for a payment platform to be considered ‘real-time’, it must meet four basic criteria*:
- They must be always ‘on’ and available 24/7/365
- They are immediate, providing an instant confirmation of payment
- The funds transacted can be accessed instantly
- They are irrevocable once sent
What does this mean to you? One of the inherent values of a real-time payment platform is the ability to support rich and flexible messaging that travels with the payment, supporting reconciliation. These platforms are typically accessible to financial institutions of all sizes, becoming an equalizer of sorts. Additionally, the platform’s architecture is framed to meet the upcoming ISO20022 messaging standard that combines payments with related account details – keeping everything traveling together.
But it doesn’t end there. Sure, there is the obvious benefit of speed, but real-time payments offer many other benefits to banks and businesses. For banks, lower payment processing costs and the ability to process more payments in less time has a big impact on efficiency and performance. And providing real-time payments as an option to your customer base can deepen those relationships as they gain more visibility into cash flow and transaction data.
Payers and payees also benefit from the communication that travels directly with the payment, alleviating the need to email or call your bank for transaction details. This feature keeps all transaction-related dialogue in one place – giving either party a holistic view of the payment life cycle.
Real-time payments in the U.S.
Today in the U.S., the RTP® network from The Clearing House is the only real-time payments industry infrastructure created specifically for financial institutions. When launched in 2017 it was a big deal, as the first new U.S. payments infrastructure to emerge in 40 years.
Currently, the Federal Reserve is developing its instant payments platform, FedNowSM, which is slated to launch in 2023/2024. Billed as an ‘interbank faster payment system’ it will allow your payers to transact with a wider group of payees, including those at different financial institutions.
Not surprisingly, these faster payment infrastructures are also driving innovation in the fraud prevention space. It makes sense since the ability to send and receive instant payments electronically demands a fraud prevention platform that can analyze user behavior and react just as quickly, since the window to catch fraudulent behavior is narrowing. Advanced technologies like artificial intelligence and machine learning are proving essential to identify and stop financial criminals in their tracks, giving your customers confidence in the security of their payments.
It’s also why banks like yours increasingly partner with fintechs when plotting out real-time payment strategies. Fintechs are often on the cutting edge of emerging technologies. By partnering with the right fintech, you can place the burden of staying on top of the latest prevention technologies on them, freeing you up to concentrate on providing faster and more secure payment options for your customers.
Now that you have a basic understanding of where real-time payments stand in the U.S., check out these other resources for a deeper dive:
- NACHA’s real-time payments discussion with Jessica Cheney, VP Product Management and Strategic Solutions at Bottomline, explores the added value of faster payments.
- It may not look like the U.S. needs real-time payments. but it really does – in the U.S., the forces that shape the outlook and ultimately drive adoption are fundamentally different than those driving faster payments globally.
- The emergence of real-time payments in the U.S. B2B arena – in late 2017 the RTP system debuted in the U.S. – the first new payment rail in decades. This article brings clarity to its current status.
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*Bottomline’s Real-time Payments Primer