A Guide to Real Time Payments

Introduction

Real-time payments, or RTP, are revolutionizing how businesses execute financial transactions. Unlike traditional banking systems, RTP payments allow immediate transfer of funds 24/7. This advantage empowers businesses to accelerate payment transfers, streamline cash flow management, and render enhanced customer experience.

Not sure how Real-time payment works or the challenges businesses usually face with these financial transactions? Buckle up and get ready to learn how it works, its benefits, and more.

What are Real-Time payments?

Real-time payments refer to the electronic payment methods executed instantly between banks and banking systems. Unlike traditional payment transfers like checks, wire transfers, and ACH transfers that take several days, Real-time payments reflect funds instantly in the recipient’s account. 

Real-time payments offer significant benefits to individuals and organizations, including high speed, enhanced efficiency, and convenience. RTP payments can be used for peer-to-peer transfers, bill payments, online shopping, and more. Organizations across the globe are embracing Real-time systems to contemporize their financial architectures and offer enhanced Customer satisfaction. 

7 Examples of Real-Time Payments

Real-time payments have become integral for businesses, and there are many different Real-time payment systems available worldwide that provide instantaneous bank-to-bank transfers. These systems vary from one another based on a number of factors, including the financial system, regional economic requirements, legal frameworks, and more. 

Let us look into a few examples of Real-time payment Processors

• • Mobile Wallets: Mobile wallet apps that include Apple Pay, Google Pay, Samsung Pay and more enable Real-time transactions within individuals and supported merchant payment networks. 
  • Cryptocurrencies: Several cryptocurrencies, such as Ethereum and Bitcoin, facilitate Real-time peer-to-peer transactions on their own blockchain networks. 
  • SEPA Instant Credit Transfer (SCT Inst) (UK): SEPA stands for the Single Euro Payments Area. The initiative was launched by the European Union (EU) and the European Payments Council (EPC) with the goal of creating a standardized and unified payments market for transactions made with euros across the continent. SEPA provides the same basic terms, obligations, and rights for individuals, businesses, and organizations sending and receiving money inside the SEPA zone, regardless of their location. SCT Inst is an instant credit transfer scheme within SEPA that facilitates Real-time euro payments across European countries.

• The New Payments Platform in Australia (NPP): The New Payments Platform (NPP) in Australia facilitates Real-time payments between the participant accounts of Australian financial institutions. This platform provides a PayID that enables customers to make payments with easy-to-remember information. With this feature, customers can access their accounts with their email IDs or phone numbers instead of using the conventional Bank State Branch (BSB) number and account number, which are hard to remember.
• SWIFT GPI Instant: SWIFT Global Payment Innovation (GPI) service expands its services to improve cross-border payment speed, transparency, and traceability and innovates SWIFT GPI Instant. Participating banks can settle cross-border payments in Real-time via SWIFT GPI Instant, giving the receiver instant access to money. 
• The Clearing House (TCH): TCH refers to The Clearing House, a US-based payment system that provides Real-time payment services. TCH facilitates payments, clearing, and settlement services for the banks registered with them. TCH also allows for Real-time payments 24/7, providing businesses and consumers with quicker and more efficient payment alternatives.
• FedNow: The FedNow Real-Time Payment services are offered by the Federal Reserve of the United States. FedNow enables Real-time payment services to individuals and businesses to transfer money instantly, 365 days a year, around the clock. 

Real-Time Payment Networks 

Real-time payment networks facilitate instantaneous money transfers between two different bank accounts. Real-time payment networks empower individuals and organizations to execute financial transactions quickly enhancing efficiency, security, and convenience for individuals and businesses. 

How Do Real-Time Payments Work? 

Real-time payment networks facilitate the immediate availability of funds and confirmation of payment, allowing for fast and efficient transactions. Let us look into the process of how Real-time payment networks functions

Transaction Initiation: This is the phase where the sender initiates a payment through his preferred mode of transaction such as mobile apps, online banking, and more. Here, the sender provides the necessary details including the amount to be transferred and the details of the recipient’s account.

Authorization: Once the bank receives the request, it verifies the details and also verifies if the sender has sufficient funds available in his account to initiate the transfer. 

Routing to RTP: The payment information is transferred to the Real-time payment network of the recipient’s bank. 

Clearing and Settlement: The receiver’s bank receives the transaction details and confirms it. The funds will be reflected immediately into the recipient’s account. 

Notification: Once the transaction is executed successfully, both the sender and receiver receive instant notifications confirming the completion of the transaction, providing transparency and assurance to both the sender and receiver. 

Benefits of Real-Time Payments 

Other than offering instant funds transfer, Real-time payments offer several other benefits to businesses and customers. These include:

Speed: 

One of the significant advantages that Real-time payments offer is speed. Unlike traditional payment methods, which take days to complete the transaction, Real-time payments are processed instantly, allowing the user to use the funds once the transaction is finished. This helps solve complex business problems associated with time-sensitive payments. 

Convenience:

Real-time payments assist users with utmost convenience as users can execute transactions at their own convenience through mobile apps, online banking platforms, and more without paying visits to banks. 

Cost cutdown:

Compared to the traditional payment processes, Real-time transaction fees are lower. Therefore, individuals and organizations can reduce transaction costs, especially for high-volume or frequent transactions. 

Availability:

 With traditional payment processes, you can only execute transactions during banking hours. Real-time payments allow users to execute transactions around the clock 365 days a day, providing users with great flexibility and accessibility to send and receive funds anytime, any day. 

Reduced risks of fraudulent activities: 

Real-time payment networks incorporate advanced security compliance to protect users against fraud and unauthorized transactions. Besides, the instant processing of transactions also helps reduce the risk of fraud. 

Improved efficiency:

Real-time payments result in improved cash flow which accelerates the overall efficiency of the business. Real-time payments also provide greater visibility and better tracking.

Enhanced customer experience:

The speed, facility, and convenience of Real-time payments improve overall customer experience. Customers appreciate the flexibility and accessibility of Real-time payments, enhancing trust and loyalty. 

Therefore, it is essential for businesses to adopt B2B payment processing solutions to stay updated and offer unparalleled customer service.

Challenges of RTP 

We have learned that Real-time payments offer a wide range of benefits. However, businesses also face a few challenges while using this payment method.

Let us look into them:

Infrastructure complexity: 

For businesses, implementing Real-time payment systems is essential to stay ahead of the competition. However, implementing a Real-time payment system demands a sophisticated infrastructure capable of handling high volumes of transactions. This is a big challenge for businesses as developing and maintaining this could be difficult and expensive for banks and payment providers. 

Interoperability: 

Organizations must execute several cross-network and cross-border transactions, and they find it challenging to achieve interoperability between Real-time payment systems and networks. This happens due to the lack of compatibility and standardization between the systems, which creates a barrier to seamless cross-border or cross-network transactions. 

Security:

One of the major challenges that organizations encounter while setting up a Real-time payment system is security concerns. Even as Real-time payment takes less time to execute, it is difficult to identify and prevent fraudulent activity in such a short span of time. 

PCI Regulatory Compliance:

Real-time payment systems must comply with PCI regulatory compliance such as anti-money laundering (AML) and know-your-customer (KYC). This adds complexity and cost to the operation of the RTP network.

Customer Education: 

Not every customer completely understands how RTP payments work and the various risks associated with them. Therefore, educating your customers and businesses about how it works and the various security risks associated with it is essential to promote adoption and reduce risks. 

How HighRadius Helps Streamline Payments Process?

HighRadius offers a robust suite of solutions designed to streamline Real-time payment processes for businesses, especially within SAP environments. With its Payment gateway for SAP integration, HighRadius facilitates efficient authorization and settlement of credit card and ACH payments, ensuring seamless integration with SAP’s ecosystem.

This is how HighRadius can help your business optimize Real-time payment processes:

Authorize and Settle Payments:  HighRadius facilitates businesses in authorizing and settling credit card and ACH payments directly within SAP for sales orders. This integration streamlines the payment workflow, eliminating the need for manual intervention and reducing processing time.

Touch-less Reconciliation: Another great benefit that HighRadius offers its customers is Touch-less reconciliation. HighRadius automates the reconciliation process within SAP through 4-way matching, ensuring that payments are accurately matched with corresponding invoices, orders, and other relevant documents. This touchless reconciliation eliminates human errors, enhances accuracy, and improves operational efficiency.

PCI Compliance Elimination: HighRadius helps businesses bypass PCI compliance by utilizing tokenization and secure payment data storage, which reduces the financial and legal strain on them. Reusable tokens streamlined compliance procedures besides assuring the protection of critical card data.

Secure Card Processing for Orders and Invoices: The features of the HighRadius Payment gateway include credit card holds for high-risk purchasers and automatic settlement upon invoice generation which provides secure card processing for orders as well as invoicing within SAP. HighRadius also provides secure card processing for orders as well as invoicing within SAP. This results in maximizing cash flow management and ensuring payment transaction security.

Interchange Fee Optimization: HighRadius integrates with Interchange Fee Optimizer to automatically transfer transaction-level data needed for optimizing interchange fees. By reducing interchange fees by up to 30%, HighRadius empowers businesses to achieve significant cost savings in card processing. 

ACH/eCheck Processing: HighRadius endorses low-cost payment solutions such as ACH and eCheck, encouraging businesses to accept and process electronic fund transfers for orders and invoices. This boosts payment flexibility while reducing transaction costs.

FAQs

1) What is RTP vs ACH?

Real-Time Payments offer instantaneous fund transfers between accounts, ensuring immediate availability of funds. In contrast, Automated Clearing House (ACH) transactions are batched and take 1-2 business days for processing, offering slower settlement but encompassing lower fees than RTP.

2) Will RTP replace ACH?

Real-Time Payments (RTP) provide several advantages like instant transfers, convenience, 24/7 availability, and more; it is unlikely to replace Automated Clearing House as it is embedded in several financial systems. ACH handles a wide range of huge transactions, including billing, payroll, and more.

3) What are the use cases for Real-time payments?

Real-time payments are versatile and find applications across various scenarios on a day to day basis. Some common use cases include Peer-to-Peer (P2P) Payments, bill Payments, retail purchases, Ecommerce, gig economy payments, payroll processing, instant loan disbursals and more.