4 ways to make practical use of real-time payments
As new, faster payment technologies have evolved and adoption has grown, certain scenarios have emerged where Real-Time Payments (RTP®) transactions are clearly the best options for businesses.
In the past few years, the idea of real-time, instant payment processing in the business world has evolved from theoretical to practical. Now that consumers regularly pay bills online, make touchless transactions at stores and send money to friends via cash apps, people expect speed. Businesses are moving down a similar path as they begin to realize they need to keep up with the pace of their customers.
Real-Time Payments (RTP®) is one of the options that was developed to fill this need. In fact, businesses have discovered a number of scenarios where features like digital request for payment and immediate settlement make RTP the best fit.
RTP and the faster payments evolution
Simplifying payment processing is not a new goal for businesses, even going back 10 or 15 years. Without a digital infrastructure, though, that all felt like an unattainable dream rather than a tangible reality. The stakes changed when technology advanced and support across the financial industry grew, including initiatives from the Federal Reserve like the Faster Payments Task Force, which began assessing the digital payments landscape in 2015.
In the ensuing years, a variety of faster payments gained momentum with the push to modernize the U.S. payment system, including Same Day ACH, push-to-card and RTP. The Clearing House launched RTP in November 2017. The network has rapidly expanded since then, now reaching 60% of U.S. Demand Deposit Accounts (DDAs). Aligned to their task force recommendations, the Federal Reserve plans to launch another faster payment option called FedNow in 2023.
While RTP has grown since its initial launch, it has also evolved. Enabling Request for Payments (RfP) for consumers, added to the existing functionality for businesses, delivers increased opportunities for both speed and efficiency. Now, businesses are discovering new ways to leverage RTP’s immediate payments, 24/7/365 availability and data-rich transaction information. [LGR1] All these capabilities also align to the global ISO20022 standard for easy and swift integration.
When real-time payments really make a difference
As adoption grows, so does the understanding of situations where the increased speed and functionality of RTP and RfP just make sense. In a world that moves as fast as a mouse-click, here are some areas where businesses are seeing the benefits.
"Now, businesses are discovering new ways to leverage RTP’s immediate payments, 24/7/365 availability and data-rich transaction information."
1. Provide customers immediate access to funds
Example: Emergency disbursements
Someone experiencing a car accident or home fire may need an urgent car rental or a hotel to stay in for the night. When the insurance agent says they're issuing an advance to cover the initial expenses, no one wants to wait for a check to arrive in the mail or even an ACH to clear in their checking account. The agent can disburse those funds in seconds with RTP, giving immediate availability to the payee in their personal banking account, even on nights, weekends and holidays.
This faster access and 24/7/365 availability can become a differentiator for a business. Or in the future, at the very least, customers will begin to notice when their money is delayed, especially when they’re experiencing a crisis that requires an immediate response or they’re expecting life-changing amounts.
Similar scenarios: cash advances, loan proceeds, large dollar payouts
2. Move money efficiently
Example: Transactions with suppliers and trading partners
In today’s world of supply chain challenges, using RTP to pay suppliers can give businesses an advantage in terms of shipment and delivery. The 24/7/365 access and real-time settlement mean funds are available immediately, even on nights, weekends and holidays. This can improve overall business relationships, especially with trading partners
RTP allows the ability to manage cash flow, while taking advantage of supplier discounts. Transmitting the ISO20022 standard data also allows for better integration with accounting systems and easier reconciliation. Although the speed, efficiency and availability of RTP improve many payments, the benefits are magnified when applied to a higher number of transactions.
Similar scenarios: move funds to other businesses or your employees like payroll and bonus payments
3. Streamline process for collecting funds
Example: Follow-up requests for rejected checks or returned ACH payments
When someone sends an ACH payment and the item returns because of insufficient funds, RfP can provide an efficient alternative for collecting the funds. The treasurer can send a RfP through the RTP network with the information they already have to request the payment a second time in the form of a digital bill. Next, they can receive back a payment of irrevocable funds that can be confirmed immediately.
This works in a similar way for returned checks. Initiating an RfP cans streamline collections and reduce the overall cost of processing overdrafts.
Similar scenarios: last minute payments by consumers, overdue customer bills
4. Support time-sensitive transactions
Example: Paying bills on the day they’re due
Some payments are time-sensitive and can’t wait hours or days with delays in posting. Whether it’s a consumer trying to avoid late fees or a treasurer trying to manage cash flow, time really can mean money for some people. RTP is available for immediate payment and confirmation at any time of day or night, which gives payers the ability to wait until the last second to pay a bill or invoice.
This added certainty allows more people and businesses to confidently pay bills at the last second, and even gives businesses the ability to make payments to their payees that are available in their bank accounts immediately, 24/7/365.
RTP isn’t restricted by deadlines or normal business hours, ensuring money delivery as soon as the transaction is made with immediate receipt confirmation and no guesswork.
Similar scenarios: medical bills, consumer payments to businesses
RTP is one piece of the payments puzzle
With technology changing so quickly and so many faster payment options jumping to the forefront, it’s important to match the right payment to the right situation. There is a time for fast and a time for more traditional payment methods.
RTP helps businesses the most when paying in real-time matters, any day, any time of the year with immediate settlement, data-rich messaging and 24/7/365 access. RTP is just one piece of the payment ecosystem businesses need to maintain pace with the rapidly changing landscape.