As real-time payment (RTP) schemes expand, providers will need to assess readiness and define a clear strategy for platforms, operations, risk and customer experience.
RTP schemes are expanding fast. This is being driven by customer expectations and experience; competitive pressure from FinTech service providers; mandates and regulatory direction; desire to reduce, and ultimately, replace cash and checks; and globalization and digitization of commerce.
RTP schemes are spreading across the globe
There are currently 40 active schemes globally (up from 25 in 2017), 16 new RTP schemes set to go live within two years and five more payments programs in development.
The rapid growth of these schemes lies in the appeal of key features:
- Availability – Funds are available to recipients immediately, addressing the cash flow needs of both consumers and corporations.
- 24x7 – Customers can send and receive money 24 hours a day, seven days a week, representing a big shift away from traditional daily cutoff times and business-day-only processing.
- Credit push – Funds are moved from the sender to the receiver, instead of the receiver debiting the sender’s account, as is the norm with many existing payment schemes. Credit push gives senders more control and transparency.
- “Good” funds – In many schemes, once funds are sent, authorized and certified, they cannot be reversed – the receiver has certainty that the funds received can be used immediately.
- Data and notifications – Modern payments systems deliver easy to access, information-rich transactional details. Most RTP systems provide transparency about the payment to both the sender and receiver, notifying each participant that a payment was sent and received.
- Request for payment – Debits are generally not supported in RTP. Instead, an invoice in the form of request is submitted and responded to with payment. This provides the ability to address additional commerce use cases, such as purchase orders, and enable straight-through processing of receivables for invoicing.
- Settlement – Different schemes take different approaches to settlements between financial institutions. But whether schemes employ real-time gross settlement (RTGS) or delayed settlement, settlement times do not impact the availability of funds to the end receiver.
- International standard messaging – With long term interoperability in mind, systems are being built on common standards, ISO 20022.
Overhauling systems to take advantage of RTP data
Most discussions around the key advantages of RTP center on its speed but this is shortsighted.
While the immediate availability of funds is of obvious benefit to the cash flow of both consumers and corporates, it’s the information that the RTP architecture provides that offers huge innovation opportunities for the payments industry.These opportunities are driving huge change across financial institutions, corporation treasury departments and payment services providers that are all retooling infrastructure, processes, products and channels to securely support the “new normal.”
We expect to see a proliferation of products and services in the consumer and commercial landscape – both domestically and internationally – that will harness the value of both the speed and the data that comes with RTP.
Expanding potential for RTP use cases
RTP use cases began in the consumer space with Person-to-Person (P2P) applications serving as a replacement for cash or check payments among friends and family. These services took off fast, fueling the volume of RTP transactions and raising expectations among both consumers and commercial customers for these types of payments. Customers that have grown accustomed to immediate retail experiences began to ask questions such as, “If I can order and receive a toothbrush within hours, why is it that money, which is inherently digital, is delivered at a slower pace?” Domestic schemes such as Venmo and Zelle in the US, or Swish in Sweden report growing numbers of transactions and users each year.
The success of real-time P2P payments is now influencing the commercial space with both Business-to-Consumer (B2C) and Business-to-Business (B2B) use cases proliferating:
- B2C: Real-time B2C disbursements innovations are expanding, supporting many changes in the platform economy, and becoming a tool in aiding cash flow for merchants and consumers. Insurance companies, FinTechs and loan providers are embracing real-time disbursements as a way to differentiate in the marketplace and grow their businesses.
RTP is also supporting the gig economy by enabling “payroll by the gig” vs. “paycheck to paycheck” payment cycles. Whether it’s a ride-share service attracting drivers by being able to pay them by the trip, or a technology firm’s ability to attract specialized talent and pay them for hours worked, the request for payment and speed of payment provides the scale to power the changing working environment.
- B2B: Cash flow, forecasting and cash management needs are the primary drivers behind adoption of RTP schemes in B2B, where both buyers and suppliers can benefit from enhanced data and speed. Buyers can take advantage of supplier terms, making payments “just in time” to maximize savings. Suppliers benefit from immediate funds availability, days sales outstanding (DSO) improvement and efficiencies associated with the straight-through application of receivables though data-rich payment remittance information.
- Cross border: Efforts are underway to address real-time cross border needs, particularly for P2P uses cases, but many of these are “closed loop” – operating only within one country or with limited users. Connecting national schemes remains an opportunity, and we expect to see connectivity among schemes regionally (within a corridor) and internationally, particularly as regulators begin to weigh in.