As the adoption of real-time payment systems in other countries pushes full-steam ahead, the U.S. must prepare to build a system that accommodates both the corporate and consumer need for faster payments.
Real-time payments in the U.S. is a bit behind the curve. Countries like Singapore, the UK, and Poland have enjoyed near-real-time payments for awhile (the U.K.’s Faster Payments Scheme was launched in 2008). The push for real-time payments is gaining critical momentum here, however, with a number of financial industry consortiums working to develop standards as well as a Federal Reserve-assembled taskforce. The promise of faster payments for corporations is enticing: speed up the time frame for recognizing receivables, improve the flow of commerce, increase liquidity, and better back-office efficiencies. The automation of digital transactions can drastically reduce inefficient and error-prone manual processes and free up resources to focus on the needs of the core business.
Many of these efficiencies will be driven by the relaying of more information than is allowed by current systems. This information will flow in alignment with transactions, providing better insights into cash flows and more accurate decision-making.
Finally, real-time payments will offer more security. Current system and processes require a payer to authorize another party to withdraw money from their account. With real-time payment systems, the authorization process would likely be based on push transactions, allowing a payer to directly authorize a payment. When tokenization is added to the mix, replacing sensitive account data with unique identifiers, fraud risk can be significantly reduced as well.
Both businesses and consumers have a strong desire for faster settlement. For more complex transactions, users expect that information and reporting around these payments will follow suite.
Corporations are not the only ones who stand to benefit from—or are pushing—the creation of a real-time payments system. Several consumer groups (and most consumers) are pushing for the Federal Reserve to build this type of system to help alleviate high costs associated with a slow payments system. Overdraft fees and check cashing have long been pain points for many consumers. Real-time payments would make smaller dollar deposits available faster for consumers.
While the Federal Reserve has largely been allowing the market to dictate the development of any real-time payments system, the development of such a system has been slow and arduous. Consumers are left to work with inefficient payment options as even banks are slow to adopt newer technologies.
A look at the peer-to-peer (P2P) payments world offers insight. Real-time payments provide benefits to consumers in a number of ways. Both domestic and cross-border peer-to-peer (P2P) payments offer a fast, seamless way to pay and receive payments between friends and family, regardless of distance. Yet, it was only after PayPal created a platform for P2P that banks began to adopt the technology via Zelle.
P2P payments are already supported by more than 20 applications in the U.S, which leverage smart devices, bank accounts, and debit cards to facilitate fast payments. Forrester estimates that P2P payments will broach $17 billion by the end of this year—a 70% increase over $5 billion just 5 years ago. Real-time payments caters to this consumer segment by amplifying the qualities of P2P payments: speed, convenience, and accessibility.
This adds color to real-time payments conundrum as convenience becomes a top priority in the payments space. The reality is that people and businesses are looking for more convenient ways to send and receive payments. In fact, Deloitte posits that the popularity of smart devices and push toward ecommerce may be driving faster adoption of real-time payments.
One area where real-time payments is projected to have a significant impact is in the healthcare sector. Lipis Advisors forecasts that real-time payments in healthcare will grow at over 100% CAGR through 2022.
Lipis Advisors notes that real-time payments in healthcare will grow at more than 100% CAGR from 2018-2022. Additionally, it estimates that one quarter of all online bill payments to healthcare providers (and payers) will happen through real-time payments within the next three years. This push will happen as ACH, debit and check payments move onto real-time payment systems.
This type of system stands to benefit all involved. Providers have the opportunity to receive instant reimbursements from health insurers, cutting collection and reconciliation time. They can also enjoy instant payments from patients, avoiding the hiccups that can accompany traditional payment methods (e.g. bounced checks), while also streamlining the payment experience for those patients who get instant insights into the funds available in their accounts. On the other hand, providers that may need to issue refunds or reimbursements to patients can do so immediately, increasing customer satisfaction and ultimately, retaining patients.
The benefits of real-time payments for are palpable for both consumers and businesses across industries. In addition to providing drastically faster payments, better visibility and enhanced insights will be hugely beneficial, especially on the corporate side. For consumers, cutting the speed to payment can reduce the extraneous costs of the current system, including overdraft fees and check-cashing costs. Same-day payrolls are mutually beneficial for businesses and consumers. As the push towards real-time payments continues in the U.S., banks must consider whether they are able to accommodate to the shifting landscape.