In today’s fast-moving economy, everything is instant. The same is the case with payments as businesses adopt real time payments (RTP). There is mass adoption of RTP systems worldwide, enabling merchants, consumers, and businesses to make all types of transactions at the drop of a hat. In the U.S, 40 percent of the companies have adopted real time payments. The latest report from Grand View Research says that the global real time payments market size is expected to reach USD 13.54 billion in 2021, which was estimated at USD 10.64 billion in 2020.
Real time payments or digital payment systems offer 24/7 instant bank transfers. These are the interbank fund transfer services initiated through smart devices such as smartphones, digital wallets, tablets, and the web. It enables the interbank account to account payment and secure funds transfer with immediate notification features.
The Week Magazine reports that India leads in real time payments with 25.5 billion transactions. China was second with 15.7 billion transactions, then comes South Korea, Thailand, and the U.K.
What’s driving the growth of real time payments?
The growth in real time payment has built up a new standard among consumers. It is driving a change in traditional payments such as debit, credit, cheques, etc. Cash is already becoming a thing of the past. With the growth of smart devices such as smartphones and the boom in e-retail commerce, there is a rapid growth in the adoption of real time payments. There are certain factors because of which RTP is gaining momentum all over the world.
Smartphones are replacing wallets and cash in both developed and developing countries. Moreover, due to catalysts like digital currencies, NFC (near field communication), and social platforms, new P2P payment providers are popping up regularly. Hence, there is a rapid change in the payment industry due to technological innovation.
New players and business models
New startups and partnerships are frequently introducing new options for the payment sector. There are a lot of fintech startups that emerged in the past few years. Their focus was primarily on services like security with fraud detection and authentication, instant availability of funds which is now shifting towards making RTP a core element for businesses to optimize the operating model.
Many small businesses and large retailers are looking at RTP for efficient cash flow management and reduced fraud activities. What appeals to them more is an increased payment assurance and lower transaction fees than traditional banking.
The tech-savvy consumers now expect everything to be available in real time. Now, paying to anyone is just a few clicks or touches away. Earlier, when payments seemed to be stuck, it used to create worries. Whereas now you have access to your funds as soon as it is available.
Regulations for accelerated payments are in favor of both developed and developing countries. This is because it can benefit both the consumers and the government while increasing fluidity in the economy.
Consumers and businesses expect a simple yet instant payment and transfer experience no matter where they are in the world. A lot of efficient payment solutions have already been implemented in various countries. There is increased pressure on countries that have not embraced the RTP yet in the banking system.
Benefits of Real Time Payments
Time is now for real time payments. Delays and inefficiencies are not accepted anymore. There are more benefits of RTPs than the traditional banking system. Future need
- It facilitates a fast and robust exchange of money across borders. However, banks need to change the infrastructure to get the best out of it and make it a reality. It includes untying from old payment systems to new ones through payments modernization or PayMod.
- It enables enhanced visibility in transactions and brings in more agile cloud deployment, which is a need of the future.
- RTPs provide opportunities to generate new revenue.
- It allows better cash management.
- There is improved liquidity which enables better management of day-to-day operations.
Challenges And Opportunities For Financial Institutions
With real time payment comes the opportunity for businesses to win, serve and retain the customers. There is much more efficiency, security, and engaging commerce experience. Combining eCommerce and real time payments have attracted new participants to the market to develop convenient and easy solutions. However, this multiplication of players can bring some challenges for banks.
There is the possibility of losing customers to new financial service providers. Therefore, it has become crucial for banks to provide similar offerings that enable other associated services to stimulate consumer spending. It will allow new payment channels and will boost the revenue. Moreover, banks that involve real time payments can reduce payment transaction costs. They can also enable innovative payment services to deliver to consumers and businesses with enhanced value. Banks can also attract new customer segments if they build possible solutions to capture real time payment activities.
Challenges And Opportunities For Central banks
Building a new payment infrastructure is beneficial and enables much more flexibility. However, it is also a costly affair for banks. There is a need for an improved system for banks to start with real time payments. Older techniques such as ACH (Automated Clearing House) do not resolve the issue. The alignment of ATM and PIN debit infrastructure with different networks is necessary for banks’ integrated cash management system. Additionally, there has to be an expanded ability to use those networks to rely on credit push rather than already existing debit pull mechanisms. Credit push systems are comparatively safer as the consumers need not provide the payment credentials to a third party.
In credit push systems, the paying banks give authentication to customers and assure the availability of “good funds” to support the transaction. It creates a more predictable payment cycle between payer and payee. There should be harmonized and consistent information to minimize the issues of transacting in real time worldwide. Such information should be present from payment initiation through reporting regardless of region, platform, channel and currency.
The Central Banks should be associated with global standards. It helps banks reduce integration costs and efficient interaction with other banks and financial institutions. It allows the banks to leverage the data more effectively. Furthermore, searching for marketplace synergies with third-party payment providers will enable the banks to build expanded and flexible payment solutions for developing state-of-the-art banking platforms. All these changes in the banking system can assist in facing global commerce challenges in better and innovative ways.
Time is now for real time payments
Banks are struggling to meet the demand for real time payments currently. Additionally, they can even face worse if they do not link the old system with RTPs. A high volume of real time transactions is expected in the coming years. Likely, the customers and businesses will desert the banks, which would not pace with demand. Hence, banks need to build a cost-effective way to handle those transactions and more diverse workloads. Then only real time payments will prove to be best for the banking system. Awarded one of the best mobile app development company in dallas by many. Ultimately the solution depends on each bank’s unique situation. To brainstorm innovative solutions and for more information, get in touch with our Fintech Experts today!