6 minute read
Payments processing for organizations typically takes hours or even days. But real-time payments — the capability to have payments processed in real time and money transferred instantly — have existed for several years. So why haven’t more organizations started taking advantage of this capability that has clear benefits to their businesses and their customers?
Why aren’t real-time payments mainstream?
There is little doubt among experts that real-time payments will eventually become a mainstream capability. The benefits to all parties are too obvious and advantageous.
“No other payment rail allows you to see, within a few seconds, whether or not that payment was successful,” says Irfan Ahmad, managing director and head of U.S. Payments in Global Payments Solutions for Bank of America. “There’s a huge benefit in that, whether you’re a consumer or a business.”
Real-time payments have also given the banking industry an opportunity to modernize, Ahmad continues, “and to keep up with where our customers and our customers’ customers already are.”
Businesses have always strived for greater control over their payments, and real-time payments allow them to achieve that by making “precision” payments — sending payments exactly when they want to make them, at any time, even when the bank’s offices are closed.
Plus, customers expect businesses to be “always on” and to transfer their funds to them immediately, regardless of the time of day or if the banks are closed.
Real-time payments allow organizations to drive revenue by enhancing their value proposition to their customers with an immediate digital payment experience.
If the benefits for everyone are so clear and the technology is readily available, why aren’t real-time payments already mainstream?
It may be due to a misconception about the value proposition of real-time payments. The assumption is that real-time payments will result in businesses paying counterparties in an accelerated fashion, meaning “paying faster.” But the biggest benefit of a real-time payment is actually having more control. A business is not paying a counterparty faster, they are paying them precisely when they want to pay them, down to the second.
“Real-time payments” means the payment, when enacted, arrives in the end user’s account immediately. It doesn’t mean the business has to pay immediately.”
“Real-time payments” means the payment, when enacted, arrives in the end user’s account immediately. It doesn’t mean the business has to pay immediately. You can schedule a payment 30, 60, even 90 days from the date of the invoice.
Having this level of control means a buyer-and-supplier relationship can be even more dynamic. “If a supplier comes to you and says, ‘pay me by today or tomorrow and I’ll give you an X% discount,’ the buyer can take advantage of that with real-time payments,” according to Ahmad. In this scenario, the buyer can take advantage of a discount and the supplier can have better predictability over cash flow — ultimately giving both parties more precise control.
While business-to-business adoption of real-time payments has not been as widespread as expected, business-to-consumer use cases are already benefiting from the value of real-time payments. They’re becoming the driving force behind increased adoption of the RTP network.
Businesses with non-fixed worker hours and payment schedules are seeing a competitive benefit in paying employees at the ends of their shifts. The gig economy and earned wage access are two examples of industries leading the charge on the RTP network.
“Allowing for immediacy of payment for a consumer or worker is very powerful.”
Ahmad believes that one reason the gig economy, earned wage access and digital wallet payouts are seeing success is that the real-time payment is integrated directly into the digital workflow. For example, workers end their shifts, log their time, and they immediately see the money in their accounts.
“Allowing for that immediacy of payment for a consumer or worker is very powerful.”
“With our customers at Bank of America we’re starting to see a little bit of an inflection point,” says Ahmad.
“Particularly in markets where competition for customers is fierce, and markets are saturated, having something that lets you differentiate yourself is critical and real-time payments are turning out to be quite an important tool.”
Ultimately, he believes real-time payments will move into the mainstream with more education.
“As folks are educated more on the topic of real-time payments, and see some of these attributes that we’re talking about as an opportunity to increase their revenue and their market share,” says Ahmad, “we’ll start seeing that tipping point.”
