As we continue to move into a digital, cashless world, the demand for faster, safer and convenient payment methods has become increasingly evident in North America. But there’s a good reason for this: since the 1970s, real-time payments (RTP) have emerged as a game-changer, slowly but surely changing the traditional payment landscape of financial transactions from physical to digital. And with a business environment that is now more competitive than ever, gaining access to funds quickly has become vital.
What are real-time payments?
Real-time payments (RTP) refer to electronic transactions that are initiated, processed and settled almost instantaneously at any time of the day, any day. Unlike traditional payment methods like checks or ACH transfers, which may take anywhere from a few hours to several days to complete, RTPs offer immediate transfer of funds between all types of accounts, enabling quick and hassle-free transactions. They’re also attractive to both businesses and consumers because they are cheaper, faster, more efficient and, in many cases, a lower-risk means of moving money around.
Since Japan’s adoption of the Zengin system in 1973, several other countries have developed their own infrastructure to support RTPs.
This includes:
- US: RTP® from The Clearing House
- Singapore: FAST (Fast and Secure Transfers)
- Australia: New Payments Platform (NPP)
- UK: Faster Payments
- Mexico: Interbank Electronic Payment System (SPEI)
And coming soon:
- Canada: Real-Time Rail (RTR)
- US: FedNow
How do real-time payments work?
RTP transactions involve five parties: (1) the payer, (2) the payer’s bank/financial institution, (3) the payee, (4) the payee’s bank/financial institution, and (5) an RTP network.
The process itself is fairly simple:
- Payment is initiated by the payer
- Transaction is authorized by the payer’s financial institution
- Message is sent visa the RTP network
- RTP network validates the message and confirms liquidity in real-time
- RTP network then accepts or rejects the payment in real-time
- If accepted, payment is forwarded to the payee’s bank
- Payee will receive a notification about payment
The future of real-time payments (is now)
As you might imagine, RTPs play a big role in boosting the global economy: they impact various aspects of financial transactions, business operations and economic growth. And it looks like the success of RTPs is slated to grow even more over the coming years.
According to GlobalData, 118.3 billion real-time payments were made globally in 2021 – a YoY growth of 64.5 percent. This, they say, is set to rise to 427.7 billion in 2026. By 2026, real-time payments are forecast to account for 25.6% of total global electronic payments, up from 18.3% of total global electronic payments in 2021.
For many, the future of RTPs is now, and for those who are unaware about how RTPs work, now is the time to learn. As real-time payments continue to evolve, we’ll be seeing more globalization, financial inclusion, regulatory backing, economic agility, digital innovation and collaboration – all of which will play a pivotal role in creating an efficient world economy that benefits individuals, businesses and societies at large.