What is Real-Time Payment Processing?
A real-time payments system is a technology that enables instantaneous money transfer between banks and banking systems. Payments can be made around the clock 365 days a year and the funds are available immediately. That scheme aims at expediting the availability of funds. In such a scheme, a low value real-time payment request is initiated that enables an interbank account-to-account payment fund transfer and secure transaction posting with immediate notification features. The main aspects of a real-time payments system are: certification of payment; funds are made immediately available; instant settlement of outstanding obligations between financial institutions; payee receives the funds and payer receives confirmation of the status of the transaction.
How does it help the Financial Institutions?
Real-time payments help financial institutions win, serve, and retain their customers. Real-time payments help attract new participants to the market who are developing convenient, easy solutions. businesses gain the ability to improve their working capital, as funds will be credited to their financial institution immediately. Real-time payments can reduce payment costs and enable higher value services to customers. Real-time payments help financial institutions improve customer engagement and long-term customer relationships. Real-time payments enable financial institutions to innovate new product offerings to increase their market share. Real-time payments reduce fraud risk.
There are five popular use cases for real-time payment processing.
Real-time settlements for merchants: Traditionally, merchant accounts are not settled in real-time because acquiring banks must request and receive authorizations from issuers and other participants in the payments ecosystem. Acquirers also prevent immediate access to funds to protect against chargebacks, but now offer some form of real-time settlements to help smaller, independent businesses amid the pandemic, but this process has been slow.
Real-time payments for employees, contractors, and freelancers: Employees, contractors, and freelancers often struggle because of delayed payments. Real-time payments can speed up the process.
Replacing Paper Checks: realize significant cost savings and improved customer satisfaction with real-time payments instead of the much-maligned paper checks, which are expensive to produce, distribute, and process.
Cross-border payments: Real-time payments can expedite international money transfers without compromising security.
Peer-to-peer payments: are popular as a simple, safe, and cost-effective way to transfer funds from one person to another without handling checks or cash.
Real-time payments systems address the needs of financial institutions, businesses, consumers and society by offering extensive data exchange, real-time messaging, and 24/7/365 availability and by helping businesses better manage day-to-day operations. Real-time payments can help improve accuracy, customer engagement, cash flow, data transparency and operational efficiencies.
Future of Real-Time Payment Processing
There is global demand for real-time payments. The development of faster, more efficient, more transparent payments will be an iterative process. We’re at the beginning of next-generation thinking about real-time payments, especially at the global level.
All in all, The term “real-time payments” can describe a range of rapid money transfers. The true meaning includes The transfer of funds from a payer to a payee within seconds — not minutes, not hours, and certainly not days. It’s called an “immediate settlement.