Increasingly, real-time payments — also referred to as immediate payments, instant payments, faster payments and rapid payments — are gaining traction in markets around the world. With more than 50 national real-time payment schemes in use globally, the time is now for companies to plan how they can capture the opportunities underpinned by real-time payments.
As the name suggests, real-time payments are payments that are initiated and settled in real-time, on purpose-built, real-time payment rails. This digital infrastructure provides continuous, always-on access — even on weekends and holidays. Money is transferred instantaneously between banks and banking systems, providing immediate funds availability and up-to-the-second account information for both the sender and receiver.
What are some use cases of real-time payments?
The use cases for real-time payments continue to grow, with person-to-person (P2P) and consumer-to-business (C2B) driving the majority of real-time transaction volume growth. Well-known P2P real-time services include Zelle and Venmo in the U.S., while markets such as India, China, Thailand, U.K., Nigeria, Brazil and Mexico are driving high volumes of low-value consumer payments to merchants.
Examples of real-time payment use cases include using a P2P payment to pay a friend for lunch or a parent transferring allowance to a teenager.
Insurers use real-time disbursements to pay insurance claims, helping policyholders in times of need, such as after a car accident or natural disaster.
Man hands using mobile phone and holding bills at home
Payroll is another area where real-time is quickly becoming essential. While gig workers (e.g., Uber drivers) can be paid instantly for services rendered, companies can also deploy real-time payments to pay new employees without the delay of setting up payroll information with a bank — which can delay payroll payments.
Utilities can also use real-time payments to help consumers either pay in full or in installments using real-time account information.
Furthermore, the pandemic highlighted the need for real-time and contactless payments. With citizens in need of assistance, paper checks proved to be an inefficient way for governments to disburse much needed funds. And in cash-based economies, the inability to offer real-time and digital payments impacted citizens’ ability to buy necessary items in-store and online.
What are the biller and merchant benefits of real-time payments?
For businesses, the benefits go beyond speed. Real-time greatly improves liquidity management for billers and merchants, which allows these companies to pay vendors, buy supplies and better track payments due to the data-rich format of real-time payments. They can also save by avoiding interchange fees through the use of real-time rails.
Additionally, merchants and billers can use real-time payments to improve the customer experience by helping to meet the increasing demand for instant payments acceptance and delivery.
What are the banking benefits of real-time payments?
Banks connecting to national real-time payment schemes are positioned to capture the rapidly growing volume and value of real-time payment transactions while attracting and retaining customers by meeting their growing expectation for real-time payments and information. And, for acquirers facing increased competition from fintechs, real-time rails can be leveraged to develop digital overlay services, such as Request to Pay, that enhance the consumer experience and develop new revenue streams.
What value added services are being enabled by real-time payments?
Request to Pay
Request to Pay simplifies and speeds bill and P2P payments. In a typical scenario, a business (e.g., landlord or utility) sends a “request to pay” to the consumer’s mobile device. The consumer can then pay the bill directly from their banking app, a trusted source.
For the consumer, this ensures on-time payments and greater security, as the funds will be sent through their bank app and immediately confirmed as delivered. For the business, Request to Pay reduces the risk of check fraud and bounced checks and helps to promote more on-time collections. Businesses also save on interchange fees and gain instant liquidity management.
Request to Pay is commonplace in India, which leads the world in real-time payments volume, and is growing in popularity in countries like Malaysia.
Least-Cost Routing
Request to Pay simplifies and speeds bill and P2P payments. In a typical scenario, a business (e.g., landlord or utility) sends a “request to pay” to the consumer’s mobile Least-cost routing is another value-added service that banks can take advantage of. This enables customers to establish rules with their bank to define which rails are used for each payment type and value, such as low-value payments through real-time rails. This can reduce costs for the customer, and banks can customize these rules to leverage the least expensive option for any given payment scenario.
More than 50 countries around the world have enabled real-time payment schemes, with more in development. India serves as the world’s biggest real-time payments market and is considered the benchmark for real-time payments adoption. Driven by financial inclusion initiatives, the country’s United Payments Interface (UPI) integrates multiple bank accounts into a single mobile app and is supported by nearly 190 banks and PSPs. UPI offers simplified P2P and merchant payments using mobile numbers or QR codes, and faster payments authentication.
ACI’s recently released Prime Time for Real-Time report spotlights the real-time payments environment for 48 global markets, including those with new or recently launched real-time systems, such as Brazil (PIX) and the U.S. (The Clearing House and FedNow).
What are the modernization challenges associated with deploying real-time payments?
The COVID-19 pandemic rapidly accelerated the growth of real-time payments around the world. Financial institutions must deploy systems with the agility to meet highly dynamic consumer and market demands, which has increasingly involved migrating to the cloud.
Connectivity is also a major real-time payments challenge. Financial institutions must build payment platforms that can connect to both international and domestic real-time payment schemes and rails.
Additionally, governments and regulators continue to flesh out regional mandates and initiatives that will impact real-time payments development. Globally, the adoption of ISO 20022 will standardize real-time payments throughout the world, helping to deliver more useful data, greater security for all payments and expand the opportunity to develop value-added services.
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Prepare for IS0 20022
With expert insight from payment experts across the globe, we’ve debunked some of the most common misconceptions to bring clarity to a complex topic.
ACI Enterprise Payments Platform is the core processing infrastructure for:
Malaysia’s Real-time Retail Payments Platform
STET’s real-time payments platform
ACI also serves on the U.S. Faster Payments Council, ISO 20022 Real-Time Payments Group and EPC Instant Payments Technology Group — and has been named as a participant in the FedNow pilot program.
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