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What Are Real-time Payments?

The lighting begins to dim in the restaurant to illuminate the sun as it sets behind the skyline. The sound of deep conversation and clinking tableware fills the air. The food was excellent; the wine, superb. Now comes that moment of anxiety when the server drops a single bill on the table.

As recently as five years ago, this moment would have people fumbling for their wallets. Promises of IOU’s and “I’ll get the next one” would be exchanged. But now, things are different.

Now, you can sit back and enjoy the remnants of that last glass of wine, while your friends hop on their phone and transfer money into your account within seconds.

Talk about efficiency.

Introducing Real-time Payments

Those real-time transactions that we send back and forth to each other on a daily basis are just that: real-time payments.

From a peer-to-peer (P2P) perspective, real-time payments (RTP) are already available. We can send and receive money instantly without giving it a second thought. Despite the widespread adoption and apparent simplicity of RTP for P2P, the same can’t be said for real-time business-to-business (B2B) payments.   

The advantages of P2P are well-known. The way businesses will benefit from a RTP solution is a bit different, yet the idea remains the same.

Before we dive into the benefits, let’s clear the air about the fundamentals of RTP that most of us can agree on.

What Does Real-time Payments Mean?

If you had ten payments experts in a room and asked them to define RTP, chances are you are going to get ten different versions. It is crucial to note that while real-time payments mean the authorization of money coming out of an account, it doesn’t mean the money is settled in real-time.

In the payments world, we are not quite at real-time settlement. For clarity sake, in this article, let’s talk about real-time payments as in real-time payment authorization.

While the definitions may vary, there are essential foundations of RTP that should theoretically remain the same.

  • Real-time payments have the ability to send and receive payments in seconds and can be initiated 24/7/365.
  • Once a payer has initiated a payment, they cannot cancel it.
  • After initiating a payment, the payer instantly receives a confirmation on whether or not the payment has successfully reached the payee’s account.

If you’ve initiated or received a real-time payment, the above most likely applied. The critical aspect of real-time payments is that they are available 24/7. They can be initiated through many channels; smartphones, tablets, digital wallets, and the web. The connectivity of the digital world makes these channels already at the disposal of most businesses.

The Benefits of Real-time Payments

What if we apply the previous example of RTP to business? The foundations are relatively the same. A business purchases a product or service from another business, is invoiced, and then must pay that invoice as soon as possible.

RTP has the ability to revolutionize how businesses manage day-to-day operations completely by:

  1. Improving liquidity by providing alternatives to cash and checks which can have long payout times.
  2. Providing greater detail into remittance and reconciliation through longer transaction messages supported by a RTP rail.
  3. Enhancing operational efficiencies such as invoicing while helping to monitor fraud and risk.   

The shift towards real-time payments is an exciting time for businesses, making them more agile than ever before. A new infrastructure that provides faster payments, and is available 24/7 with an emphasis on security takes us one step closer to a globally compatible payments ecosystem.

If you have any questions about how to get your business real-time payment ready, our payments experts are just a click away.

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