Going Fast or Last: What Are Real Time Payments?
- All, Insights
So, what is RTP? And how can you benefit from using it? More about this in our post.
The introduction to what is real-time payment
The real time payments definition is rather obvious. These are payments made immediately.
Once a payment transaction is initiated, the money is instantly withdrawn from the payer’s account and credited to the recipient’s account. Is there a defined time for instant payments? The short answer is no.
Instant payment processing usually refers to the processing within seconds. However, there is no specific regulation that defines the exact number of seconds the real time transaction should take.
While some transactions take longer than instantly, they still qualify as real-time payments in specific regions under specific governing standards. However, let’s make sure we are on the same page and clarify meanings:
- What real time payments are: transactions processed within seconds or, in rare cases, minutes.
- What real time payments are not: transactions processed within hours or days.
Cost of real time payments
Real time transfer is not something that you need to invent on your own. There are many off-the-shelf realtime payments solutions available in the market. DCM payment software for instant transfers is one of them. Our SaaS platform is based on blockchain and AI technologies to ensure not only faster but also more cost-efficient transactions for banks and merchants.
Organizations that want to process online payments need to choose the appropriate RTP provider and suitable instant payment methods. With that said, the cost of a real time transaction will mostly depend on the third-party vendor you decide to partner with.
Additionally, the final cost of real time money transfer will be influenced by factors, such as:
- Type and volume of transactions processed
- Presence or absence of cross-border payments
- Complexity of integration with the client's IT infrastructure
- Degree of customization of RTP software
- Level of customer support provided by the vendor
- Fees of intermediaries involved in real time settlements (e.g., other banks, card services, payment systems, etc.)
How do real time payments work?
The five steps below will create a clear understanding of how real-time payments work:
Step 1: Transaction initialization. This is when a payer, usually a buyer, decides to send money to the payee, usually a merchant. The payment may occur in online or offline stores. The payer may choose to pay via an online or mobile banking app, by scanning a QR code, or by entering payment credentials manually.
Step 2: User authentication. The payer’s bank verifies the payer’s identity. This is usually done using a password or more advanced biometric authentication methods, such as fingerprints or face recognition. In most cases, two-factor authentication is used for security reasons.
Step 3: Transaction authorization. Once the bank authenticates the user, it checks whether they have sufficient funds in their bank account. If the funds are enough, the bank authorizes the transaction.
Step 4: Transaction processing. The bank connects with the RTP network and sends the transaction details. In banking, the meaning of the RTP network is related to a central network governed by a specific financial institution. The distinguishing feature of the RTP network is that it processes each transaction individually rather than gathering several transactions and processing them in batches. This very feature allows instant payment processing in a matter of seconds.
Step 5: Withdrawal and crediting of funds. The beauty of RTP is that the withdrawal of money from the buyer’s account and the transfer of funds to the seller’s account occur almost instantly after the transaction has been processed. After this, the payer and payee get notified about the withdrawal and crediting of funds, respectively.
Top 5 benefits of real time payments
Businesses across domains receive numerous benefits from real-time payments, including the following:
- High speed. The most significant benefit of real time payments is the high transaction speed. Money is withdrawn from the payer’s account and credited to the payee’s account instantly after clicking the “Pay” button. This accelerates the cash flow and prevents any misunderstandings between the parties, ensuring the funds have been sent as directed.
- 24/7 availability. No matter if it’s nighttime or a public holiday, a real time bank transfer will be conducted just as fast as during regular business hours. This is very convenient for day-to-day business operations and great for customer experience. Additionally, it may be vital for urgent situations when a transaction must be processed immediately.
- Better productivity. Real time payments eliminate the need for manual transaction processing. For many organizations, this means reducing personnel load and giving them more time to focus on core business activities. Take, for example, electricity providers. Without RTP, they would collect payments throughout the day and process them in batches. They would also manually reconcile payments and update customer accounts.
- Faster operations. Some businesses have super fast cash flows and need to accumulate funds swiftly to use them for subsequent purchases. An example is a wholesale distributor that deals with perishable goods and needs to purchase fresh inventory quickly. RTP in banking is what it needs to instantly receive payments from retailers and reinvest the funds to restock inventory without delay.
- Increased brand loyalty. Instant online payment methods provide a seamless user experience and increase customer satisfaction. When customers spend minimum time to get high-quality results there is a big chance they will return to the brand again. Given this, real time payments become vital for a winning marketing strategy, meaning they directly contribute to building a loyal customer base.
Real time payments use cases
Real time payments can be used in various operational fields and business domains. In fact, almost any type of payment can be more efficient with RTP technology. Here are seven real time payments use cases that you can apply to your business:
- Customer-to-customer C2C – instant money transfers between friends or family members.
- Customer-to-business C2B – POS operations in brick-and-mortar and online stores, recurring charges, and bill payments.
- Business-to-customer B2C – refunds, salary payments, expense reimbursements, insurance payments, and request-to-pay payments.
- Business-to-business B2B – supplier payments, invoice payments, expense reimbursements, and loan repayments.
- Business-to-government B2G and consumer-to-government C2G – taxes, fines, utility payments, and regulatory fees.
- Government-to-consumer G2C – salary payments, social payments, tax refunds, and grants.
- Government-to-business G2B – contract payments, tax refunds, grants, and reimbursements.
The state of real-time payments in different countries
The rise of RTP payments is a worldwide trend. In 2022, businesses executed 195 bn global RTP transactions.
According to forecasts, instant payments will account for almost 28% of all payments by 2027.
RTPs are widely-used in most countries. However, they have matured most where financial institutions and governments understand the RTP meaning for business and have joined forces to facilitate them.
Asia. The countries of this region are leading the way in the adoption of real-time payments. India, China, South Korea, and Thailand have established robust payment infrastructure and run billions of RTP transactions every year. Alipay and UPI are the most significant instant payment services which serve not only domestic transfers but support payments worldwide.
Latin America. Brazil, Chile, and Mexico are the LatAm leaders in terms of RTP usage. Brazil itself accounts for 15% of all real-time transactions globally. Other countries are also witnessing rapid growth in RTP adoption. Brazilian Pix and Mexican CoDi are the key instant payment providers in the region.
Europe. Although the pace of development of real-time payments in Europe is not as rapid as in Asia and Latin America, it is more consistent across the region. Countries like Sweden, Denmark, Netherlands, UK, Norway, Switzerland, Finland, Austria, and others are confidently adapting RTPs into their daily transactions. SEPA Instant Credit Transfer is currently the major service for real time transfers across the EU.
North America. The adoption of RTP in the USA and Canada is slower than in Asia, LatAm, and Europe, but it is steadily increasing. Understanding the importance of real time payments, government and financial authorities are working on establishing advanced RTP infrastructure. Currently, RTP network by The Clearing House and RTR project by Payments Canada drive the instant payments in the NAM region.
How can businesses enable real time payments?
Businesses that want to use real time payments do not need to reinvent the wheel. Modern fintech companies offer ready-made real time payment platforms for banks, merchants, manufacturers, agriculture businesses, etc.
At DCM, we are at the forefront of financial technology. Our interoperable payment software leverages tokenization, blockchain, and AI technologies to empower businesses and financial institutions to execute payments within seconds. Moreover, we offer the best online payment processing for small business in terms of smooth integration and cost-efficiency. Our advanced cybersecurity techniques guarantee the protection of sensitive information in storage and during transit.
Interested in how DCM can help your organization outmaneuver competitors? Book a free consultation with our RTP expert today.
info@dcm.systems
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