Real-Time Payments: The Next Big Leap in Business Transactions

Real-time payments or RTP payments are one of the fastest-growing payment methods around the world with the transaction value projected to grow by 289% by 2030.

This payment method facilitates the immediate transfer of funds 24/7, allowing companies to optimize cash flow management, enhance their customer experience, and create new business opportunities.

In this blog, we’ll take a look at real-time payments and explore why it’s one of the quickest-growing payment trends in business transactions.

What are real-time payments?

Real-time payments are credit card payments between bank accounts that are transferred within seconds, any day or time of the week (including holidays). RTP payments are a significant departure from traditional payment systems, which typically limit operation and take several business days to process payments.

RTP Network Participating Financial Institutions include:

• Bank of America
• Capital One
• Citibank
• Chase
• Goldman Sachs Bank
• PNC Bank
• TD Bank
• Truist Bank
• US Bank
• Wells Fargo
• And more

How do real-time payments work?

Unlike ACH, RTP only enables credit payments. Because the transfers are instant, all payments are final and irreversible. All real-time payment transactions involve five parties:

• The payer
• The payer’s financial institution
• The payee
• The payee’s financial institution
• The underlying RTP network

All parties play an important role in the process, which is split into five phases:

Initiation

The process begins when a payer decides to send money to a payee. The payer can initiate this in several ways (eg, online banking portals, mobile apps, in-person, etc.), providing businesses flexibility and adaptability to suit their needs.

Authentication and authorization

During this step, the payer’s bank affirms the payer’s identity through passwords, biometric data, two-factor authentication, or other security measures. The bank then verifies that the payer has enough funds to cover the transaction. If all criteria are met, the bank authorizes the transaction.

Transaction processing

The bank sends the payment details through the RTP system, usually operated by a financial authority or a group of banks. Unlike other payment systems, RTPs do not use batching, but process transactions individually continuously. This allows for real-time payments.

Notification and confirmation

After the payment is processed, the payer and the payee are notified about the transaction via SMS, email, or a push notification from the bank. Instant notifications assure banks their transactions went through and clarify where their finances stand.

Settlement

The last step in the RTP process is settlement. Unlike traditional payment systems where settlement occurs at the end of the day or later, RTP settlements are instantaneous. The payer’s bank transfers the funds to the payee’s bank for immediate use.

Real-time payments vs fast payments: Is there a difference?

While people might swap “real-time payments” with fast payment technologies, these two technologies aren’t the same. Sending and receiving money using ACH or other payment platforms like PayPal or Venmo may seem instantaneous, but there’s always a delay during the final step of the transaction.

Is there a difference between real-time payments and ACH?

As briefly mentioned above, one of the major differences between RTP and ACH is that ACH supports credit and debit card payments. The downside is, ACH payments can take up to three days, but aren’t available outside of business hours, or during weekends and holidays; RTP transactions are available immediately.

What about real-time payments vs FedNow?

Though both FedNow and the RTP network enable instant transfers 24/7, they differ in several ways. FedNow—established in 2023—is gaining traction, while RTP has been more widely used since its launch in 2017. As per FedNow’s regulations, only organizations with a Federal Reserve Bank account can use FedNow. Conversely, any federally insured US institution that enables currency deposits from customers (such as a bank or a savings association) can use RTP.

FedNow has a transaction limit of $100,000, though participants can request up to $500,000. RTP currently has a $1 million limit. Finally, FedNow only processes domestic payments, while RTP processes some foreign payments.

Where are real-time payments used?

Real-time payments are used around the world, though each country may use a unique system depending on local or regional regulations, banking infrastructure, and the local economy. Here are a few real-time payments by country like, United States, Canada, Germany, Australia, UK and more.

Potential growth use cases for real-time payments

There are several ways businesses can utilize real-time payments to streamline operations and essential functions, such as cash flow management.

Here are a few examples:

• Customer refunds
• Inventory replenishment
• Contractor payments
• Loan repayments
• Supplier payment
• Employee expenses

What are the benefits of using real-time payments?

Real-time payments provide a lot of value for businesses with significant financial resources. If you’re making a business case to implement real-time payments, consider leading with the following benefits:

Stronger cash flow management: Salary payments, restaurant tips, insurance claims; B2B real-time payments take the uncertainty and stress out of waiting to be paid.
24/7 availability: With no cutoff times, RTPs are incredibly convenient. Businesses can choose payment delivery times and dates that work for them instead of working around someone else’s schedule.
Increased efficiency and productivity: Real-time payments reduce the administrative duties for companies by automating receipts, time stamps, and other financial information, which cuts down process times.

Transaction certainty: RTP transactions immediately send payment confirmations, assuring businesses that transactions went through. This is essential for some industries such as real estate where instantly transferring large sums can shorten the process.

Improved customer experience: RTPs allow customers to pay for goods anytime, anywhere. This creates an enjoyable customer experience as businesses can meet customers where they are.

New business opportunities: RTPs are a selling point for contractors and freelancers who don’t need to wait days or months to get paid. Using RTPs to attract contractors exposes businesses to new talent.

Data-rich transactions: RTP systems provide more data and valuable insights than traditional payment methods. An RTP transaction can include invoice details and purchase order numbers, which makes it easy to manage accounts.

Risks and challenges of real-time payments

Since RTP is a new system, there are some drawbacks. Understanding the following risks and challenges ahead of time can help inform safe payment practices.

Fraud and security risks: With instant processing times, there’s no time for banks and PSPs to detect or prevent fraud.

Technology and infrastructure investment: Businesses may need to upgrade their solutions to enable RTP technology, which can be time-consuming and costly.
Regulatory compliance: RTPs are a somewhat new technology that’s subject to different regulations in different regions. Businesses and financial institutions need to comply with all relevant laws and regulations.

Interoperability: RTPs interoperable and seamlessly work with other payment systems domestically and internationally. Getting all of these systems to work together can be challenging.

Risk management and governance: RTPs carry unique risks. Institutions need separate risk management systems that handle potential operational scenarios, like system failures or transaction errors.

Customer adoption and education: Customers must use RTPs for companies to reap its benefits. This requires educating customers about the benefits of RTPs and answering any questions.

How can I implement real-time payments?

There are several ways to introduce real-time payments into your payment strategy, but it begins with investing in a platform that can:

• Support real-time payment processing and back-office operations
• Enable existing digital touchpoints
• Deliver added-value services
• Provide a gateway or endpoint to the central scheme

Papaya Global’s payment services are offered through Azimo, Papaya’s licensed payments arm. Azimo is a payment services provider regulated in five Tier-1 jurisdictions. These licenses allow Papaya, together with its partners, to provide workforce payments worldwide. For further information on Azimo’s licences worldwide, check our licensing page