What are real-time payments?
Real-time payments (RTP) are transforming financial transactions globally, providing a faster, more efficient way to transfer funds. Unlike traditional payment methods that could take days to settle, real-time payment systems facilitate the immediate transfer of funds, 24/7.
This innovation in the financial industry is not only changing how businesses operate but also how individuals manage their personal finances. Understand what real-time payments are and how a real-time payments system can benefit your bank's customers.
What are real-time payments?
Real-time payments are electronic payment solutions that allow for instant transfer of funds between accounts at any given time, on any day of the week. Unlike traditional payment systems, where transfers may take a few business days to process, RTP completes transactions within seconds. Immediate payments are achieved through a continuous settlement method, which eliminates the waiting times typically associated with banks' batch processing schedules.
Implemented through a digital infrastructure, RTP is facilitated by advanced technologies and secure protocols to ensure immediate, reliable, and safe transactions. This method of digital payments is increasingly becoming a preferred choice for both businesses and consumers due to its convenience, speed, and 24/7 availability.
Why do we need instant payments?
Your customers' need for faster payments has grown significantly due, with an ever-increasing demand. In fact, RTP transactions are expected to quadruple by 2026. RTP consumers expect their transactions to be carried out instantly and securely, a key aspect of providing an excellent customer experience.
Today's digital economy also requires faster payment processing times as businesses compete to provide the most efficient services. With RTP, businesses have access to immediate capital, enabling them to stay agile and expand rapidly.
How does an RTP network work?
An RTP network consists of various components that work together to facilitate real-time payments. At the core is a central clearing and settlement system, such as a national payment switch or an interbank payment network, which handles the transactions between financial institutions.
This is complemented by a network of ATMs, POS terminals, and online banking services for customer access. To ensure safety and integrity, real-time payments must also be supported by security protocols such as encryption and authentication.
The difference between RTP and ACH payments
While RTP and ACH payments both facilitate electronic transfers, they differ significantly in terms of speed and cost.
Real-time payments are generally more expensive than ACH transfers, but transactions are completed immediately. This makes RTP an ideal option for time-sensitive payments such as business expenses or payroll.
ACH transfers take 1-3 business days to process and are ideal for making larger, scheduled payments such as mortgage or rent. RTP is faster than same day ACH transactions.
Real-time payment transactions & P2P payment apps
The increasing demand for faster transactions has spurred the growth of peer-to-peer (P2P) payment apps. These apps allow users to easily transfer funds securely and conveniently between their own accounts, or those of friends and family.
Security must still be taken into consideration when using a P2P payment app. One way to ensure safety is to ensure that the app uses RTP networks, such as those available through banks, credit unions, and other financial institutions. This allows users to make secure real-time payments with the same confidence and trust they would expect from a traditional financial institution.
Benefits of RTP
Move funds faster, safer, and smarter
Real-time payments offer several key advantages that make it an attractive alternative for customers and businesses alike. These include:
- Improved customer experience and strengthened customer relationships. By offering real-time payments, banks can meet the growing demand for instant, secure transactions, enhancing the overall customer experience. Offering RTP demonstrates a commitment to innovation and customer service, which can strengthen relationships and loyalty.
- Competitive advantage. In an increasingly digital financial industry, providing RTP capabilities can give banks an edge over institutions that only offer traditional payment methods.
- Increased operational efficiency. The automation and speed of real-time payments can help banks reduce manual processes, improve workflow, and increase efficiency.
- New revenue streams. By charging for instant transactions, banks can open up new avenues for revenue.
- Enhanced data and insights. Each RTP comes with rich data that can be analyzed for trends, helping banks better understand customer behaviors and needs.
Ways banks & financial institutions can utilize RTP for customers
Banks play a major role in RTP networks by acting as an intermediary between customers and payment processors. Banks can leverage their existing infrastructure and customer base to offer new and improved payment services. This could include providing customers with direct access to real-time payments, as well as the ability to send and receive funds from different payment networks.
By investing in RTP infrastructure, banks can also gain greater efficiency and cost savings across their operations. For instance, by streamlining processes such as reconciliation and fraud prevention, banks can reduce operational costs associated with manual labor.
Transform your payment offerings with E6
Banks can leverage this modern payment system to provide innovative services and improve customer experience. With immediate access to capital, RTP enables businesses to stay competitive in today's digital economy.
RTP is changing the landscape. If you're looking to implement future-ready paytech to your offerings, Episode 6 is here to help. At E6, we follow a progressive modernization approach to seamlessly integrate with your existing tech stack, so you can reap the benefits of faster launch-to-market times without worrying about downtimes. Contact us today to see how we can help your bank grow.
About the Author
Episode Six provides financial institutions with solutions for legacy payment stacks that aren’t fulfilling the needs of an expanding industry. We are a global provider of enterprise-grade payment technology and ledger management infrastructure for banks that need to keep pace with disruptors and evolving consumer preferences.