How Can Businesses Use Real-Time Payments?
Although traditional payment options are still around, consumers and businesses want improved payment methods to send and receive money faster. Real-time payments are a solution that became available in the United States in 2017. This platform offers significant improvements, including payments that are transferred and settled almost instantly.
Since the real-time payment network is expected to grow domestically and internationally, businesses must understand what it is and how to leverage it to improve operations. Explore our guide for everything you need to know about real-time payments.
What Are Real-Time Payments?
A real-time payment is a near-instantaneous payment between two parties. Its name comes from the fact that initiating, clearing and settling a payment occurs in real time, taking only a matter of seconds to complete.
All real-time payments follow International Organization for Standardization (ISO) 20022, a global financial messaging and payment systems standard. Its consistent, data-rich messaging format allows real-time payments to process quickly, which reduces errors, prevents processing delays and enhances security.
Real-time transfers operate on an open-loop system, meaning payments are withdrawn from the payer’s account directly instead of relying on a prepaid balance.
The real-time payments rail is the network that makes these payments possible. The network processes orders 24/7 year-round, so you can send and receive real-time payments at any time.
The most prominent real-time payment network in the U.S. is the RTP network by The Clearing House. The Federal Reserve is due to launch another network called FedNow in 2023. Other countries, such as India, Japan, the United Kingdom and Brazil, have their own networks to support real-time transfers.
Faster Payments vs. Real-Time Payments
Though faster and real-time payments seem similar, these terms are distinct with key differences. Real-time payments are a form of faster payments, but not all faster payments are real-time payments.
Faster payment solutions are options that use an accelerated payment rail to post payments quicker than traditional payment rails but are not instantaneous. They are faster because they message transactions quickly but do not settle them in real time.
Examples of faster payments include:
- Same-day ACH payments by the National Automated Clearing House Association (Nacha)
- Peer-to-peer (P2P) payment apps like PayPal, Venmo and Zelle
- Debit push payments like those by Mastercard and Visa
Real-time payments are posted and settled in real time, so the payee can receive money almost instantly. Examples of real-time payments include the RTP network and FedNow.
Benefits of a Real-Time Transfer
Real-time payments offer several advantages, including:
- Almost-instantaneous credit: Real-time payments are one of the fastest options available, with payments received and settled almost instantly. The real-time payment network is also available outside standard business hours and on weekends and holidays. People and businesses can send payments anytime and receive money right away without waiting for the money to be credited to the account.
- Better liquidity management: For businesses, near-instant payments support their cash flow. Instead of funds locked in processing between accounts, funds are credited to the receiving account immediately. This factor is especially beneficial for small businesses with a smaller cash flow.
- Cost savings: Real-time transfers save businesses money because this method is more cost-effective than traditional payment options. Printing and mailing a paper check takes more time and risks printing errors that delay payment. Transactions that fail to post and need to be fixed manually can become costly. The real-time transfer network eliminates these drawbacks.
- Improved communication: With traditional payment methods, communication flows in one direction—from payer to payee—and any further communication about the payment has to happen outside the platform. As a result, issues with the payment can take longer to resolve. Real-time transfers allow both payer and payee to communicate, and quick payments improve payment efficiency.
- Irrefutable payments: Real-time payments are irrefutable or irrevocable. Once the payer sends money, they cannot take it back or reclaim it. This factor is important in business because they can send and receive payments on delivery of a product or service. Instant payments also make it more difficult for parties in a contract to go back on the agreed terms.
Merchants Using Real-Time Payments
In the business-to-business (B2B) market, banks, merchants and companies across industries recognize these benefits of real-time transfers. Customer demand for real-time payments has increased, and governments around the world support this payment solution. As a result, more and more businesses are using this network for their payments. The total real-time transactions in the U.S. reached 1.8 billion in 2021 and are expected to grow to 8.9 billion by 2026.
The retail and e-commerce industry accounted for 34.5% of global revenue from real-time payments in 2021, the biggest share of any market. The desire for quick payment settlements from merchants and the growth of mobile-based shopping have contributed to this growth. Banking, financial services and insurance will likely increase their share in the coming years as they work to adopt real-time transfer options for their customers.
How Businesses Use the Real-Time Network
As real-time payment adoption has increased, businesses have found ways to take advantage of the network for B2B transactions. P2P payment apps are integrated with the real-time payment network to make transfers nearly instantaneous. Companies can use this network on P2P apps to make B2B payments, which is easier and quicker than manual processes.
Companies can also use real-time payments for B2B uses like:
- Confirming payments
- Adjusting the timing of payments
- Managing liquid funds
- Paying bills
- Reviewing payment data
The Future of Real-Time Payments
Given that real-time payments are increasingly more adopted by businesses and expected by consumers, this payment method will continue to improve and become the norm for digital payments. In the U.S., the RTP network—and FedNow soon—will encourage developments in real-time payments and support more users and transactions.
As more companies and people use the real-time payment network, security will become increasingly important. Financial technology is a popular target for hackers, but appropriate safeguards can keep payments secure. Fraud detection software like behavioral analytics and machine learning identify fraudulent transactions. Some governments have mandated or are considering legislation for real-time payment security.
As the use of real-time payments becomes more popular, traditional payment methods like paper checks have decreased. Checks are common in B2B transactions, but their processing costs and timeline are prompting more companies to consider electronic payments. In consumer transactions, the use of paper checks has been diminishing for decades. A report from the Federal Reserve Bank of Atlanta found the number of checks consumers wrote decreased by 63%, from 19.3 billion in 2000 to 7.1 billion in 2015.
Choose the Real-Time Payments Platform From CSG Forte
Manage your company’s payments with Dex, the cloud-based payments platform from CSG Forte. You can unify all your company’s transactions onto one platform and use APIs to integrate its functionalities with your platforms. As a result, you can manage your entire transaction life cycle with:
- Simplified payment operations by managing transactions and disputes
- Informed customer insights backed by data
- Enhanced reporting and analytics
- Reduced payment platforms and logins
With Dex, you’ll have more time to spend on your business because our platform will monitor and manage your payment data for you. See how Dex works by scheduling a demo with our team. Sign up today for your payment platform solution.