Financial Services
Payments
Open Banking
Financial Services
Payments
Open Banking
June 5, 2024

7 Benefits of Real-Time Payments That Can Fuel Business Growth

Trustly

From The Clearing House’s Real-Time Payment (RTP) network in the U.S. to the Immediate Payment Service in India, RTP systems are shaping the future of e-commerce and financial transactions. These ecosystems allow customers to instantly pay merchants or send funds to another bank account within seconds. Account-to-account payments are now as easy as clicking a button on an application programming interface (API) or app, thanks to the integration between RTP networks and payment service providers like Zelle or Venmo.

Because of their ability to streamline payments through connectivity, RTPs are becoming more common. According to The Clearing House, its RTP network processed 74 million transactions in Q4 2023, a 15% volume growth compared to Q3. In addition, the Federal Reserve’s FedNow Instant Payments network (an alternative payment rail launched in July 2023) reported that the number of participating banks and credit unions has increased from 35 early adopters to 400 by January 2024.

However, it’s important to understand that most real-time payments are credit-push payments only, meaning payers authorize their banks to “push” funds to the payee’s account. Payees can’t initiate a debit payment, where funds can be extracted from the payer’s account. A workaround to this limitation is a service called Request for Payment (RfP) that allows payees to send an e-invoice to the payer’s bank app. The payer can then simply click a button to approve the payment.

The benefits of using real-time payment systems go beyond frictionless and convenient electronic payment processing. In this guide, we’ll discuss these advantages and features in more detail and how they can help your business enter a new stage of growth.

 

Enhanced Operational Efficiency Through Automation

Instant payment transactions include underlying information that makes fund reconciliation and invoicing easier. Moreover, integrating RTPs with an Open Banking platform that provides automation solutions or software can streamline payment processing, eliminating manual entries and errors. These platforms can provide a clear audit trail because they reflect transactions in real-time.

Real-Time Payment networks enable data transfer to help financial institutions and merchants improve their payment and accounting processes. This updated information can facilitate more accurate financial analysis, guiding businesses in strategic planning (including fund allocation on tools that can boost efficiency), compliance reporting, and product development. When companies can reallocate their funds more effectively, they can focus on growth and innovation rather than administrative tasks.

Improved Cash Flow and Liquidity Management

Through immediate funds transfer, RTPs upend the traditional payment method of batch processing, which takes days. Companies can now better control their finances through enhanced availability and visibility. This is especially crucial for small businesses that are more affected by long days of sales outstanding (the number of days it takes to collect cash from credit transactions).

Moreover, real-time processing prevents the pile-up of aging invoices and accounts receivable, reducing cash flow disruptions. As a result, companies can make more informed decisions about investments and other operational expenditures. This includes focusing on improvements and innovation because there’s less risk of fund shortage.

Regarding liquidity, RTPs can help companies optimize their capital because significantly fewer cash buffers are needed to cover periods of uncertainty (like the COVID-19 pandemic). Instant payments can also minimize overdraft and short-term financing costs because there will be a fairly steady and predictable influx of funds that can be used immediately. Increased efficiency in liquidity management can also enable better forecasting and planning to boost financial resiliency.

Enhanced Customer Insights and Data Security

Through Open Banking APIs, customers consent to share RTP data, which provides valuable information about their spending habits. Businesses can use this data to develop new services or offer personalized product recommendations based on preferences and market demand. 

For example, a company might identify a growing trend among specific customer segments and be the first to address this need before it becomes mainstream. With artificial intelligence (AI) integration, companies can predict future behavior to optimize their product lines and customer engagement.

In addition, customers can be assured that their data is being used securely and transparently. FinTech APIs have to meet strict requirements, such as the Payment Card Industry Data Security Standard. The RTP network also enables tokenization, which masks account numbers and replaces them with a generated code.

New Business Models and Market Opportunities

Instant payments with low fees can open up new opportunities, particularly in microtransactions. This business model is particularly beneficial for the social media and gaming sectors, where small transactions are more common. Another potential market is smart homes or Internet of Things (IoT) devices, such as smart refrigerators that can autonomously purchase groceries.

Faster payment platforms can also support an ever-increasing segment of gig or freelance workers who need instant access to their funds. These workers often have a global client database and need more liquidity due to the fairly unpredictable nature of their finances. They would benefit from RTP platforms that support flexible, 24/7 cross-border payments with competitive foreign exchange rates.

Strict Regulations Ensuring Financial Transaction Safety

One of the reasons why the RTP process is simple and effective is because it underwent rigorous testing, monitoring, and review before it was implemented. In 2015, the Federal Reserve-sponsored Faster Payments Task Force released 36 criteria for an effective RTP network, including data privacy and consumer protections. The Clearing House’s RTP network was developed with these criteria as a guide.

In addition, while a consortium of large banks directly governs The Clearing House’s RTP network, it also has oversight from The Fed’s Board of Governors, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC). Meanwhile, FedNow is directly managed and regulated by the Federal Reserve Bank. The Fed requires participating financial institutions to have clear anti-fraud, anti-money laundering, and anti-terrorism financing systems and policies.

Room for More Innovative Features

Real-Time Payment solutions are a bustling space that has shown a ton of innovation and progress. In particular, Open Banking integrations have allowed users to connect their bank accounts with e-commerce platforms and digital wallets without sharing account numbers and other personal information. These services have shifted financial data control to individuals, allowing them to share their data as they see fit.

Innovations can also include better infrastructure, such as more efficient messaging and alert systems, and upgrading networks to have even lower latencies. In terms of new technologies, FinTechs are developing blockchain and AI integrations to provide enhanced transparency and security, such as detecting fraudulent activities or abnormal patterns. This is particularly crucial for RTP transactions since they are irrevocable.

Enhanced Customer Experience and Adoption

RTPs have enabled customers to have more flexibility in their payment methods. In particular, centralized APIs have removed the need for multiple apps, payment systems, and login information. Combined with biometrics, it has become even more easy and secure to access Open Banking platforms to transfer funds instantly.

While RTPs have made great strides in enabling convenient payment, one feature that can further enhance the customer experience is interoperability, which is the ability for different systems and networks to communicate seamlessly. To achieve this, RTP networks must establish standardized frameworks, regulations, and protocols to enable more flexible cross-border payments.

Trustly’s RTP Banking Solutions

The benefits of Real-Time Payments include personalization, innovation, accessibility, data security, and enhanced efficiency. As this system sees more breakthroughs and developments, customers and merchants will have better payment experiences and more dynamic use cases. Trustly can help your business experience these advantages through our Payments solutions.

Trustly can make digital payments frictionless through personalized customer experiences and a simplified system. Our 8,000+ merchant base connected to over 6,000 banks already uses this solution to provide flexible and intuitive RTP options.

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