What are real-time payments?

To date, payment transactions between businesses and consumers have relied mostly on cash, cheques, and bank transfers. Even with bank transfers, cross-border payments are undoubtedly one of the biggest issues that businesses operating internationally need to face—depending on the country and the bank.

The problems relate to high fees, including FX, delays, as payments are processed in batches and not on evenings or weekends, errors, which force you to redo the payments and sometimes lose money, concerns related to security.

These concerns span different industries and have given rise to the need for a more innovative approach to expedite fund transfers. In a world without borders where more and more things are happening nearly instantly, having transactions happen in real-time is nearly a necessity. This would greatly facilitate global business expansion and foster the global economy.

This is where real-time payments (RTP) come into play. RTPs are characterised by increased speed and convenience compared to traditional payment methods. The goal is to move money faster than traditional bank transfers and more securely than cash or cheques. Research from Mastercard revealed that among six markets on three continents, people consider real-time payments as important or more important than access to the internet, next-day delivery, and even everyday utilities. Three-quarters of respondents claimed they would like all digital payments to be in real time.

In this article, we will explain what real-time payments are, their benefits over traditional payment methods, and what their widespread adoption by businesses and countries means for the world of finance.

Also known as “instant payments,” “faster payments,” or “immediate payments,” real-time payments allow funds to be transferred in a matter of seconds—from initiation, through settlement, and clearance at any time during the week, regardless of whether it’s a weekend or a holiday. This means that the funds arrive in the beneficiary's account nearly instantly, allowing businesses and customers to manage their finances and cash flow better and giving more confidence in cross-border payments and expansion to new markets.

The rollout of real-time payments is initiated by governments globally. Governments collaborate with each other in the payments field, making it easier to move money domestically and cross-border. This international collaboration makes trade more accessible and seamless. Some countries establish bi- and unilateral real-time payment connections to streamline the flow of funds. For example, the PayNow-UPI linkage between Singapore and India gives customers a secure, seamless, and cost-effective way to make cross-border payments. Today, 70 countries across the world support RTP, and ACI Worldwide’s March 2023 report indicated that RTPs amounted to 195 billion transactions in 2022, with an exponential growth of 63% year on year. It is also estimated that by 2027 real-time payments will make up 30% of all electronic payments.

Instant Processing - No Delays

Mastercard’s data shows that delayed payments can total as much as $3 trillion globally, hitting SMEs in particular. Real-time payments can be processed 24/7, 365 days a year, which benefits SMEs, their customers, and suppliers. Firstly, the speed of transactions means the beneficiary will receive the funds instantly, establishing a good reputation as a reliable business partner. Secondly, payments are not locked up in processing for hours or sometimes days, allowing businesses to improve their liquid cash and access to working capital to further invest in growth.

Minimised Risk of Fraud

When a payment is sent through RTP, the confirmation of funds is immediate, and there are no reversals. In practice, this should make it harder for fraudsters to capture payments; however, new technologies are always susceptible to exploitation. This is the case with so-called push-payment or invoice fraud, where victims are made to believe that fraudsters are legitimate businesses requesting payment. Unfortunately, if the payment is done with RTP, those payments cannot be reversed.

Cost Reduction Compared to Cheques or Traditional Methods

Real-time payments cost about the same as ACH but are much cheaper than wire transfers or cheques. Adding to that cost savings related to the minimised risk of fraud and the efficiency of settlements and reconciliation that reduces operational costs, introducing real-time payments into your cross-border financial operations can positively impact the overall bottom line.

More Details Enabling Automation and Operational Efficiency

When funds are sent through real-time payment, there’s also more data formatted to a global messaging standard. For SMEs, this translates into greater global efficiency as they can detect errors faster and reconcile incoming and outgoing payments automatically as they connect with their accounting tools. This is a big advantage for efficiency and, as mentioned above, the bottom line, as each manual reconciliation costs a business around $50 according to industry estimates.

Real-time payments will be a cornerstone for more connected financial markets and faster, more efficient domestic and international payments. It’s known in the industry that for SMEs worldwide, the speed of sending and receiving payments is paramount. It’s fair to assume that if a company is not yet using real-time payments, it will adopt them in the near future. With over 70 countries already using RTPs and a projected growth in transactions by 2027, real-time payments are reshaping financial operations with instant availability and processing, guaranteed funds, thus innovating cross-border trade through government-led interconnectivity.