Real-time payments (RTP) instantly transfer money from the customer's account to your merchant account. You won't have to wait for the funds no matter what time of day the purchase occurs. RTPs currently make up more than $118 billion in global transactions each year.
RTP networks (RTN) such as The Clearing House support these lightning-fast transactions, which will become even more common in the US when the Federal Reserve launches its FedNow RTP solution this year.
In this guide, we provide a comprehensive review of RTP basics so you can get up to speed on this massive market.
What Are Real-Time Payments?
Real-time payments go through immediately since RTNs are open 24 hours a day, 365 days a year - even on weekends and holidays. When a customer buys from your business online with an RTP method, you'll see the funds appear in your account right away (or vice versa if you issue a refund).
Before the introduction of RTP networks, the fastest electronic funds transfers could still take a day or two to clear. RTPs actually change the way banks communicate. In non-RTP transactions, your bank receives information from the customer's bank, but you can't respond directly in the payment system. The RTP network connects both banks in one transaction so messages can flow both ways, improving speed, efficiency, and transparency.
How Do Real-Time Payments Work?
Most RTP payments follow these five steps:
- The customer initiates the transaction by selecting an RTP method at checkout.
- Their bank (the issuing bank) authorizes the purchase if the account has enough money to cover it.
- The issuing bank transmits the approval to the RTP network.
- The RTP network confirms the purchase and the amount, then issues its own approval based on available info.
- Your payment service provider receives notification of the transaction. You'll be able to see the change in your account balance right away.
Where Are Real-Time Payments Used?
Dozens of countries across every region of the world use RTPs. RTNs first emerged in Japan in 1973, then came to Switzerland in 1987 and Korea in 1988. Other early adopters of instant payments include Canada, Brazil, and Mexico, all in the early 2000s.
RTPs became available more recently in Colombia and the Netherlands. Some US banks began working with RTNs in 2017, and the federal network will roll out later in 2023.
RTPs are most popular in Asia. India, China, and Thailand have the top three highest global RTP market shares.
What Are the Benefits of Real-Time Payments?
RTP can improve your business cash flow since you don't have to wait for funds to clear. Better cash flow boosts your profile in the eyes of lenders and investors, expanding access to the funds you need to grow your business.
You'll have instant confirmation of final transaction approval without delays that cause concern about chargebacks and bank denials. RTP creates a constant snapshot into your company's current cash position, so you don't have to rely on imprecise projections when you make financial decisions..
Customers also prefer real-time payments. In one survey by Mastercard, more than 75% of consumers said they want real-time processing for all digital transactions. They ranked RTP at the same level of importance as other modern conveniences like next-day delivery and internet access.
Accepting RTP methods gives your business an edge over companies that take longer to process transactions. Catering to this market preference enhances the user experience, one factor that keeps customers loyal to your business.
What's the Difference Between Real-Time Payments and Faster Payments?
Real-time payments aren't the same as faster payment methods such as ACH. Only banks that use an RTN have instant payment processing around the clock. While all US banks support ACH, which offers both same-day and next-day payments, only some have opted into RTP.
For example, push payments from Visa and Mastercard transmit money in minutes or even seconds, but they don't count as RTPs. The funds show up in your merchant account before the network actually settles the transaction. ACH networks stop processing payments from 6 p.m. to 8:30 a.m. on business days.They're also closed on weekends and holidays.
Potential Use Cases for Real-Time Payments
Instantaneous payments could inspire big changes for your business. Consider common ways business owners take advantage of RTPs:
- Creating precise cash flow projections based on real-time fund availability
- Optimizing the accounts payable process
- Accelerating payroll, vendor payments, and other large expenses
- Replacing cash and check payments with a digital payment platform
These use cases that illustrate the ability of RTPs to transform your financial operations.
The Benefits of Working with Pay.com as Your Payment Service Provider
Pay.com lets you accept a wide variety of payment methods, including RTP-friendly options like PayPal. Our full-service infrastructure is flexible enough to support businesses of all sizes, with user benefits that include:
- A fast, straightforward onboarding process so you can get started quickly
- Fully transparent billing with an affordable flat-fee per-transaction model
- Easy-to-customize templates so you can build a checkout page that matches your business branding, which enhances customer recognition and trust
- Advanced developer API so you integrate our tools into your existing ecommerce site
- Multi-factor credit card authentication with 3D Secure 2.0
- Tokenized payment data to prevent identity theft and fraudulent use
- Compliance with the highest level of PCI DSS, so you won't have to meet these industry standards alone
The Bottom Line
Real-time payments are already a reality for many merchants and consumers. They offer speed, ease, convenience, and transparency, all critical considerations for today's online buyers. If you're not already accepting RTP methods, it's time to consider a payment system that supports real-time transactions - especially as the US introduces its federal RTN and RTPs become even more widespread.