Technology & Security
Unveiling the World of Real-Time Payments
With real-time payments in vogue, gone are the days when checks and cash used to be the sole mode of payment for both consumers and businesses.
There is no doubt that technological advancement has affected how we make payments thereby birthing instant payment possibilities.
Digital payments are not just the desire of consumers. They are also the beloved payment process that every business seeks to handle its cash flow and cash management.
Table of Contents
What is a real-time payment?
Real-time payments (RTP) are simply instant payments. They are electronic payments made with the help of a clearing and settling network that makes it possible for payment processes to be swift.
Real-time payments help to curb the delay that comes with check payments. It makes it easy for small businesses to experience excellent liquidity management.
Generally, consumers and small business owners favor immediate payments since it is an effective way for them to enjoy their cash flow management.
Peer-to-peer and B2B transactions can now be made instantly. The payer and the payee can also now enjoy good rapport since there is no delay in payment settlement.
How do RTP payments work?
In November 2017, the clearing house developed a real-time payment network to enable faster payments for businesses. With real-time payment systems, businesses can initiate payment processes via banks, third parties, and even credit unions.
RTP has a two-way communication method. It allows for communication between the payer and the payee’s financial institutions.
When a payer makes payment through their banks, the real-time payments system sends data that enable the payers’ banks to communicate with the payees’ financial institutions.
RTP works on payment rails which is the platform that enables the swift transaction between businesses and individuals. Money is now easily accessible.
All digital payments made through the RTP network involve 5 components:
- The payer
- The payer’s financial institution
- The payee
- The payee’s financial institution
- The underlying RTP network
One important characteristic of a real-time payments platform is that it has a bidirectional communication system. This makes it easy for the payer and payee to monitor their funds. The payer knows when the payments reach recipients.
Benefits of real-time payments
The adoption of real-time payments is increasing exponentially as consumers and business owners see it as an excellent means to monitor cash positions precisely. Below are some of the benefits of real-time payments.
It improves the cash position
Real-time payments help to improve cash flow management. For businesses, it helps them deal with the headache that comes with processing delays. Businesses and consumers need cash flow to be able to implement real-time payments.
Simplified method of payment
Unlike traditional payment methods, real-time payments help to reduce the stress involved in making payments. The automated clearing house system gives every business owner the opportunity to stay away from paper works and focus on other important things in their business.
It enhances your business liquidity
Real-time payments help to enhance the availability of cash. With strong liquidity management, your business can easily meet its cash obligations. You will also find it easy to cover every expense.
Since your business will experience faster payments, your bank account balances will be higher and it becomes easier for you to settle gig workers. It also helps to make quick decisions on surplus cash.
It strengthens business relationship
The delays and waiting that come with traditional methods are now history with RTP. Immediate payment to vendors or business partners is now possible.
As a business, you are able to cement your relationship with both vendors and customers. Your business will be able to meet your customer’s expectations since you have a strong relationship with the partners and vendors.
It helps against borrowing
The enhancement of your business liquidity makes it unnecessary for your business to consider borrowing. RTP helps every business owner to minimize borrowing because they can now receive payments faster from their debtors and payers.
What you should look out for
There is no doubt that the real-time payments revolution has truly brought about payment modernization. And this payment innovation comes with rising expectations in the mind of business owners and consumers.
There are potential risks that come with the introduction of this payment strategy – RTP. So, let’s take a quick look at them.
Less effective error management
Since a business can be paid faster, it means errors are likely to be on the rise because the core processing would have been completed before errors can be spotted thereby making it hard to resolve errors.
With every new digital experience comes real-time challenges. Fraudsters are always on their toes to identify novel means of exploiting new technologies. Real-time payments system has brought about new scam methods. One of such scam method is authorized to push payment fraud.
This fraud is also known as APP fraud. Fraudsters who understand the real-time payments platform trick their victims by misrepresenting themselves as a business and asking them to make payments into bank accounts they have set up for the purpose of the fraud.
With real-time payments, once the payees receive funds, the payment cannot be revoked. So, it is always too late for the victim to retrieve their fund.
The good news is that there has been the development of strong fraud detection software and behavioral analytics targeted at helping with identifying possible fake invoices and payment requests. But all these are still not enough.
Another disadvantage of real-time payments is the costs that come with it. Like every other new technology, adopting real-time payments for faster payments definitely requires some changes and a substantial upfront amount.
Finally, real-time payments make it possible to make instant payments using the RTP network. Its secure system makes it possible to make short-term commitments as a business. B2B can now stay afloat on every business day since its liquidity is actively protected.
The delay that payers and payees experience with the slow procedure that financial institutions had to follow in the past has now become history. Money can now flow into a business daily and move out the same day. RTP gives everyone real-time access to their funds.
Will RTP take away the use of check?
The truth is that RTP is gaining ground every day among business owners. But there is still a wide adoption of the use of checks among businesses for their business-to-business transactions.
Many businesses still adopt checks because it helps them to prevent fraud but the reality of how much delays and waiting come with the use of checks (especially with the outbreak of Covid-19 which left many checks unattended to for months) has brought many businesses to adopt real-time payments revolution.
Are real-time payments only for B2B?
Real-time payment does not only work for Businesses. It is also adaptable for peer-to-peer payments. So, people can pay one another from their banks using the RTP network. More financial institutions are now integrating the RTP network into their apps.
Does the RTP network cost more than the traditional payment methods?
RTP does not cost more than traditional payment options.
What are examples of RTP payments?
RTP at present is available in some countries, which include;
- PIX (Brazil)
- The Clearing House (the USA)
- UPI (India)
- Faster Payments (the UK)