While Payments are getting faster, the push for real-time payments (RTP) is happening in every facet of the ecosystem. We look at some of the causes and effects and what to expect in the coming year.
We probably know about the benefits of real-time payments (RTP), but the US still has more work to do to facilitate faster payments. The payments industry is still largely operating through a batch process, even with the push for faster payments in both B2C and B2B arenas. As per a report, almost 72% of the world today owns a live real-time payment infrastructure or is planning to launch soon. We’ll look at the current state of faster payments—and where we could end up within the next year.
What Faster Payments Mean
In looking at the term “faster payments,” one would be remiss not to clarify what that means exactly. In many ways, payments are becoming increasingly faster already. In 2017, Nacha—The Electronic Payments Association® debuted Same Day ACH for debit payments. This launch added the debit capability to the already-existing credit payment option, allowing for faster bill payments and more accurate insights into account balances. In 2018, Same Day ACH enabled same-day settlements via three settlement windows.
Zelle, along with a number of other peer-to-peer (P2P) payment providers, has ushered in faster payments between people. These options enable settlement in seconds (or minutes) rather than several days.
Gig Economy & Other Influences to Spur Innovation
B2B has been slower to rise to the occasion, though it is ripe for a move toward faster, if not real-time, payments. The gig economy, along with other factors, is contributing to a push for RTP.
The gig economy is not new, though it has seen exponential growth over the past few years. Almost 56% of gig workers admit to taking gig jobs to earn extra money on top of their income. According to Upwork, 36% of the total American workforce does freelancing or gig work. The gig economy is composed of traditional freelancers, gig marketplaces, self-employed individuals, and others that collect income outside of a traditional employer arrangement.
This economic shift supports a move toward Requests for Payment (RFPs), as the self-employed directly request payment for the projects on which they work. This would also be a move away from more traditional forms of bill and invoice payments like checks, cash, wires, and ACH.
It reframes the way both consumers and businesses look at bill payments, which are currently a clunky process. Consumers are familiar with this impaired process, where they are often required to sign up for a third-party bill payment service to view and pay bills online. Even with online bill payment as a possibility, the process of matching payments to invoices is convoluted. Alternatively, RFP can streamline this fractured process by linking payments directly to the request.
While paper-based payments still rule in the world of insurance, there is an increasing demand for speedy payouts—and a more secure, cost-effective way to facilitate payouts on the part of insurance companies. Digital payments that can be sent and settled within minutes (rather than days) are in increasing demand for insurance, especially in emergencies.
Digital disbursements are less costly than paper-based ones, which require check processing and mailing. RTP, or even faster digital payments, offer more value to customers and is an inexpensive alternative for insurance companies.
Banks Will Benefit from RTP
This report on real-time payments and the modernization of bank account-based payments, notes that RTP benefits all members of the payments ecosystem and highlights the special benefits for banks. Enhanced data/messaging capabilities, immediate fund availability, and better security are top considerations. These benefits translate to:
- Boost in revenue: Not only will RTP fees increase revenue, but cross-sell opportunities via RTP also present a compelling case.
- Modernized systems: RTP requires an element of digital transformation, which can improve operational efficiency and insights from data.
- Lower costs: A reduction of cash and checks in favor of digital alternatives driven by automation can result in cost savings.
- Other benefits: The overall customer experience improves as banks are better able to address customer needs in a more timely manner.
While RTP is still evolving, other means of speeding payments are in motion. Both banks and FinTechs are making strides in the move toward faster payments. As the economy ebbs and flows, influenced by the gig economy and other variables, we will see a continued push for RTP. Banks should consider the numerous benefits of RTP and prepare internal systems and processes to accommodate new systems and requirements. While revenue uplift and cost reduction are compelling cases for RTP, a streamlined customer experience is also a worthy objective. Our payment experts can help you make the most of the real-time payment scenario. Learn how.