Introduction:
The payment landscape has developed significantly and has changed so much since the last decade. The main reason for these changes is the growing digitalization and increased innovations in digital payments.
The innovation in digital payments is surging day by day. This has given birth to the innovation that has made online payments easy. This innovation is the “real-time payments”. Real-time payments are a faster and simpler way of making online payments instantly, which makes it ever growing since day one.
According to a study by Grand View Research, the global market size of real-time payments was US Dollars 13.55 billion in 2021 and is predicted to grow at a CAGR of 34.9 percent during the forecast period of 2022-2030. These stats suggest that real-time payments have been growing since its beginning.
In addition, a study by Pymnts says that, in the US alone, 53% of businesses found real-time payments improve cash flow management. From this stat, we can say that real-time payments are gaining popularity among a large chunk of businesses and have a potential future in the payment world.
Reading this blog will give you an insight into what real-time payments are, how they work, what factors drive their growth, the futuristic benefits of real-time payment, and how it is a potential pathway to future payments.
What are real-time payments and how does it work?
As the name suggests, real-time payments are payments made in real-time. In other words, real-time payments are payment transactions between two bank account holders where the payment is initiated, processed, and settled instantly. This payment method is available 24*7 for 365 days, be it a working day or a holiday.
In addition, the major parties that use real-time payments are Customers, Small and large businesses, Government, and Payment service providers. Real-time electronic payment systems offer instant payment services through online platforms like digital wallets, the internet, smartphones, and tablets. It improves transparency and instills a sense of confidence.
It can be done in 4 simple steps:
- Authorization – The payment initiation is authorized internally.
- Posting – The payment fund is made available for transfer and recorded in the system.
- Settlement – The funds are settled instantly into the receiver account.
- Notification – Both parties involved are notified of the successful payment status.
Types of real-time payments
As we know what real-time payments are and how it works, let’s learn more about them. Did you know that all types of real-time payments are a part of the top digital payment trends going rounds in the payment industry?
There are three different types of real-time payments. They are
- Increased Efficiency in making funds transfer
Instant bank transfer is the traditional approach used extensively to transfer funds. It uses account numbers to transfer money and can be done instantaneously. Here, the users add the beneficiary details such as the payee’s name and account details to transfer funds.
- Real-time payment transfers
Real-time payment transfers or RTPs, transfer funds from one bank account to another with the help of a mobile number or a unique ID. Here, the users can send money using the payee’s unique ID or Mobile number. These RTP systems have different names in different countries. For example, it is called FAST in Singapore and NPP in Australia.
- Digital Wallets
Digital wallets are the payment mode used by interlinking your bank account with it. Here, the payment is instant through a QR code payment or wallet transfer. It is very quick and happens just in a few seconds.
So, real-time payments can be made through all these methods. Hence there is an increase in the growth of instant payment. However, some major factors are driving the growth of real-time payments.
Factors driving the growth of real-time payments
Innovations in technology
There have been numerous innovations in technology. There is an increase in the adoption of smartphones and the internet, all over the world. Technological advancements like M-pos, NFC, digital currencies, digital wallets, and blockchain have increased the need for instant payments in the payment industry.
Entry of new players
With a liberated digital and payment scenario, there has been an increase in new fintech and payment-related startups and businesses that are bringing new and innovative payment solutions into the payments industry.
The main focus of these startups is advanced mobile money solutions, instant services, and enhanced customer experience. This has generated the need for real-time online payments. So the demand for these payments has increased significantly.
Globalization
With globalization, the transactions between two countries have increased. These transactions can be exports, imports, or online shopping internationally. Hence, payment circulation all over the world has become quick and easy.
Customer and merchant expectations
With technological advancements, customers today expect to get all the services on a real-time basis. But a decade ago, that wasn’t possible for payments. But now instant payment systems and one-click mobile payment solutions have changed this scenario, and users can avail of real-time payments as and when needed.
Why are real-time payments the need of today and tomorrow?
As discussed, real-time payments are growing significantly, which indicates that the present, as well as future scenario of real-time payments, is going to be the greatest of all times.
But why are real-time payments in so much demand, and why is its future bright? Here are a few benefits that will make the picture clear:
Increased Efficiency
In comparison to various other online payment methods, real-time payments (RTPs) make the funds transfer instant in reality and bring transparency in cash flow management with just-in-time payment, instant transaction history, and real-time updates and access to bank account balances.
In addition, as the user can make payments instantly, they feel confident to make hassle-free payments from their devices. They can even make instant investments in stocks and assets to make their financial lives more efficient.
Promoting next-gen innovations
The innovation in the payment sector brings payment solutions that promote real-time payments. As a result, real-time payments will continue promoting innovative payment solutions and grow with its stride.
For example, the past innovations in payments solutions like NFC and digital wallets are now the pioneers of real-time payments and are helping them to grow at a lightning speed.
24*7 Access and easy execution of payments
From its name only, one can decipher that real-time payments are payments made instantly. Instant payment is only possible if the funds and necessary obligations are instantly settled once the payment is initiated.
Real-time payments can be made 24*7 for 365 days in an instant manner. Hence it eliminates the uncertainty about payment settlements. The certainty makes it easy for cash flow management, reconciliation, and tracking transactions and account balance.
Enhanced Security
The real-time payments come with a notifications feature for easy monitoring of the accounts balance and the transactional histories. It acts as an additional layer of fraud and risk management.
Also, the payment standard ISO 20022 has made the data exchange and communication process easy and secure in real-time payments. The business standards of messaging for ISO 20022 protect it from any risk.
Minimizes Complexity of Payments
The API-based real-time payments are performed with easy integration and implementation. This reduces the complexity and makes it the most simplistic method for online payments.
As the complexity of online payments reduces significantly, users can get the best customer experience while making real-time payments and keep using them for a longer period of time. Because who doesn’t like quick, simple, and convenient payments?
Comes with ample business benefits
With real-time payments, businesses can receive money faster, which improves their cash-flow management and record-keeping of transactions. Real-time payments are quite essential in small businesses as cash flow plays a significant role here. Also, they can easily attain their goals and reduce cash burn with the optimum fund transfers.
Real-time payments are also beneficial for big businesses. They can manage their cash flow and working capital accurately. They can also manage their supply chain payments and international money transfers with instant checkouts of real-time payments.
Conclusion
Today, more and more customers and businesses are going for instant, smooth and mobile payments. So, delivering real-time payments to them is like the icing on the cake of innovative payment solutions.
In the coming years, real-time payments will bring various benefits to the entire payment system. These benefits include improved efficiency, the new players or disruptors’ leverage, enhanced data access, fully secured transactions, and zero complexity.
The future of real-time payments is bright. And its future success will be attributed to the fact of how quickly and efficiently it can adapt to ongoing technological advancements and make payments a single-touch affair.
Author – Bio
Nikunj Gundaniya, Product manager Digipay.guru, one of the leading fintech solution providers, which provides mobile finance application development services. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.
