Is Real-Time Payments Right for You?

Posted by Deborah Peace on Jan 9, 2019 9:30:00 AM

Blog series 2_ Real-time payments

Understanding the Various Payments Systems Series: Blog 2

Today, organizations and consumers all crave fast, immediate payments. In response, services like Zelle, Venmo and same-day ACH, among others, have emerged. With so many methods, it can quickly become confusing.

Adding to the confusion is the perception that funds are immediately transferred. For instance, with mobile wallets like AndroidPay or ApplePay and services like Venmo, a user will see value transferred instantly but those funds are not settled immediately.

It is imperative, then, that financial institutions and their account holders understand the key differences between each method, and understand how each impacts payment delivery.

Real-Time Payments vs. Same-Day ACH

Previously, we explored same-day ACH – one payment method that is continuing to grow in popularity. Its ease and flexibility makes it well suited for time-sensitive matters such as payroll or business-to-business (B2B) transactions.

This week, we will look at another payment method – real-time payments (RTP). While both methods offer value, there are unique differences between the two that are important to understand, as they will influence which use cases are best served for real-time payments versus same-day ACH.

Real-Time Payments a Good Match for Peer-to-Peer Payments

Unlike same-day ACH, where payments are posted in batches and are relegated to the system’s operating hours, RTP can be cleared within seconds and made 24/7. As such, RTP can be especially beneficial in the Peer-to-Peer (P2P) space, which is rapidly growing. In fact, Forrester forecasts that P2P payments will reach $17 billion by the end of 2019, up from $5 billion in 2014. That is more than triple.

As roommates look for fast ways to split rent costs, diners share restaurants bill, individuals    look to sell merchandise on eBay, the P2P space will continue to grow, especially with options like RTP that provide speed, convenience and accessibility. With real-time payments, the payee can instantly receive payment that is valid, available and final.

Real-Time Payments Also Beneficial for Business-to-Consumer Transactions

Additionally, this instant payment method is beneficial for business-to-consumer (B2C) transactions. These types of transactions can range from an insurance company paying claims, even outside of business hours, to customer refunds or emergency payroll payments. The development of real-time payments helps open the door to new market opportunities, efficiencies and cost savings.

Real-time payments is also beneficial for temporary or freelance workers like Uber or Lyft drivers, who have a desire to receive payments immediately following a work day or project.  Rather than waiting several days later, RTP enables drivers to receive payments as soon as they go off shift.

We are also seeing this in the fast-food industry as a competitive advantage. Wendy’s, for example, advertises that new employees can be paid immediately following a shift, which is now possible. For corporate account holders, RTP can position them very well in an ever-tightening labor market.

Understanding the differences between same-day ACH and RTP is critical, as it affects processes like account opening, establishing permissions and fraud prevention controls, and customer experience and support.

In our next blog, we will look beyond same-day ACH and RTP and review another payment method that is also on the rise – third-party payment apps.


Topics: Payments