Understanding real-time payments — new opportunities for market share

Innovations in real-time payments (RTP) promise instant settlement and built-in end-to-end channels to improve clarity and transparency for payment communications.

RTP is not new. According to FIS’ Annual Global Faster Payments Report, 56 countries already have RTP systems. In 2019, China alone saw more than 16 billionreal-time payment transactions. Numerous initiatives across the globe will expand the use of RTP. For example:

• In the U.S., the FedNow Service plans to launch in 2023
• In the EU, the European Payments Initiative plans to be operational in 2022
• In Canada, Payments Canada launched the first release of Lynx in September 2021

As Deloitte stated in their report

“Real-time payments are likely to completely affect the way we transact and conduct business. … Businesses could benefit from increased availability of funds. Financial institutions could be able to provide better services. Economies around the globe could be more fluid than ever before.”

Speed is only one factor

While the speed of settlement and the resulting increase in liquidity are key benefits to RTP, the potential for new use cases has many in the payments sector examining ways to leverage the systems. The potential for Account-to-Account (A2A) payments, whether B2B treasury payments or P2P real-time cross-border payments, are whole new ways of doing business. Mass payments, such as emergency government assistance or insurance payouts, can also use the technology.

Consider the Buy Now, Pay Later (BNPL) model, which has been gaining significant traction following the surge in popularity of vendors such as Afterpay, Sezzle and Affirm. Connect BNPL purchases with A2A payments and now the model becomes even more straightforward for consumers and offers whole new levels of embedding financial options into purchases.

Paying employees or gig workers via RTP is quicker and cheaper, while offering more flexibility. Perhaps in the near future, payday will be any day you want.

Numerous other fintech innovations are made possible or improved by adding in the capabilities of RTP. Group pay or disbursements scenarios are simplified. Paying with points, tokens, or alternative currencies needn’t be a logistical nightmare. Integrating rules-based engines and AI to optimize cash flow or get the best rates are simplified. Request to Pay, where you pay an electronic invoice instantly, can become a standard option instead of sharing your information with a payee.

New payments landscape

It’s important to understand that new payment technology is not the only enabler of RTP. Behind the scenes, regulatory developments such as open banking ensure that real-time payments have full legal backing.

RTP fits well with digital money initiatives, but regulatory and social factors will determine what forms will become popular. Will Central Backed Digital Currencies (CBDC), private stablecoins, or Bitcoin be the primary digital money of choice? While the answer is critical for solution providers, who want to ensure that their product has the best payment options, end users probably won’t care if the transaction is safe, quick and easy.

The ability of RTP to rapidly integrate and adopt new crypto technologies will spur further innovation. Crypto payments, by their nature, is an RTP platform;

There are already solutions that use blockchain for certain aspects of payment flows and many more in development. Payment giants such as Visa, Mastercard and Amex all have projects going, and there’s bound to be much further amalgamation between crypto and other payment technologies. Smart contracts, programmable money and other DeFi ideas will automate payment functions based on preset conditions, providing transparency and reducing risk.

One of the most significant driving forces for RTP is the ISO 20022 standard, which provides a common messaging platform for financial information, such as payments. The massive variety of new financial products and services can work together, as they can rely on ISO 20022 to effectively bridge different data protocols, formats and semantics. There’s a massive rush of payment projects adopting the standard into their systems since, as Andrew Foulds, director of global clearing solutions and product management at Fiserv, states:

“Financial institutions that look beyond compliance to embrace the opportunities of ISO 20022 will lead the payments transformation of 2022 and beyond, bringing the benefits of openness and interoperability to customers while enhancing the long-term viability of their own operations.”

Verified and authenticated accounts

Perhaps one day in the not-too-distant future, your digital wallet will have hundreds of accounts to make a payment with, with different incentives and interest rate charges. This model only works if it’s easy to manage and sign up for all the highly secure accounts.

Robust identity verification and authentication methods are necessary for real-time payments to provide the seamless and quick experience that we trust. All payments need to be credited and debited to the correct accounts. There needs to be clarity on who you are paying, and fraud attempts need to be a rarity. After all, real-time payments, if done improperly, can mean real-time theft.

Fortunately, developments in identity are occurring as fast as in payments. Soon, delays in payments, and all the negative consequences that result, will be history. The era of real-time payments is coming — is your business ready?