What took paperwork and days of waiting can now be done in a few clicks with settlement in seconds. The benefits of real-time payments are huge – they’re redefining how businesses operate, and the best is yet to come.
One financial services expert labels instant payments as the driving force behind the rapidly evolving payments landscape. Jeremy Bornstein, Chief Revenue Officer at Peoples Group, a leading provider of banking-as-as-service solutions for fintechs, notes "Real-time payments is the most pivotal trend impacting not only how consumers, businesses, and governments will pay for things, but more importantly how they interact with their money."
So what are real-time payments (RTPs) again?
In short, RTPs are electronic fund transfers between two bank accounts, in which authorization and settlement happens concurrently in seconds instead of separate processes over days, and the data transferred between parties is rich and two-way. Unlike wire transfers, real-time payment systems can be made 24/7, 365 days a year.
RTP payments are on the rise globally. Payment rails like SEPA in Europe have been widely adopted by consumers and businesses. In Germany, 90% of payment accounts offer instant payments, according to consultant PwC, while France and Spain boast an 85% adoption rate.
Commenting on the rise of RTPs worldwide, Bornstein sees that “much of the industrialized world has adopted real-time payment schemes, including the US, UK, India, and China. Canada’s is in the works with the much-anticipated Real-Time Rail, or RTR, being developed by Payments Canada.”
While adoption of FedNow and The Clearing House’s RTP are just gaining steam in the US, consumers and businesses there have been holding on to legacy payment systems, with 32,1% of B2B payments still made in checks or cash, as research from research firm Insider Intelligence shows.
While Payments Canada works on the RTR, Canadians have been enjoying instant payments. According to Bornstein, “we also have solutions in the market today that can help move funds instantly using Interac eTransfer, Visa Direct and Mastercard Send, and even open banking tools combined with the slower EFT rail – all with higher cost and risk than national schemes can provide.”
With businesses hungry for instant B2B payments, Deloitte predicts that real-time payments could replace between US$18.9 and 37 trillion in ACH and check-based B2B payments in the United States by 2028.
Source: Deloitte
Why are companies so eager to adopt real-time payment platforms? What are the benefits of real-time payments?
Here’s what some firms cite as top reasons to use RTP payment systems, according to media outlet PYMNTS.
Source: PYMNTS
For forward-thinking leaders, moving from slow and cumbersome payments to instant payment methods presents many opportunities. In this article, we cover the 8 biggest benefits of real-time payments for businesses:
- Faster processing times
- Major cost savings
- Improved cash flow and liquidity
- Better supplier relations
- Enhanced customer experience
- Operational efficiency
- High security and data protection
- Improved competitive edge
- Integration with new payment technologies
Let’s dive into how to optimize cash flow management, simplify administrative processes, and create a more seamless customer experience with real-time payments.
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1. Faster processing times
As Jeremy Bornstein points out, traditional payment methods are simply too sluggish - "Today an electronic payment can take up to 72 hours to clear and settle." This outdated process forces businesses to send payments days in advance, creating major inconveniences.
“Consumers and businesses trying to pay bills, transfer funds, or make payroll need to send their money days in advance or be potentially subject to penalties,” Jeremy illustrates. “Even electronic payment card transactions take days to settle and depositing a cheque can take five days for the funds to be available.”
RTP payment rails facilitate faster payments that are cleared and settled in seconds. Bornstein affirms, "In 2024, there must be a better way" – and RTP is precisely that solution, empowering businesses with immediate payment processing around the clock.
2. Major cost savings
With the wholesale cost of an RTP expected to be higher than EFT but lower than an eTransfer in Canada, real-time payment services are more affordable than other B2B payment systems like cash, cheque or card.
But the cost-cutting opportunities don't end with transaction fees. Additionally and perhaps more importantly, RTP systems cut operational overhead costs associated with traditional transactions. Think of the manual labor involved with legacy payment processing of cheques, or payment cards.
With real-time payment networks, much of that manual labor can be programmed into a company’s payment infrastructure through APIs and payments can be automated.
3. Operational efficiency
The ability to automate instant payment processing through real-time payment rails promises a massive boost to a business’s operational efficiency.
RTP payments follow the ISO-20022 standard, which means they are transferred with more data formatted to a global messaging standard, giving businesses the ability to automatically reconcile payments, improving back office efficiency and making it easier to resolve errors and reduce processing delays.
4. Improved cash flow and liquidity
Adopting real-time payments does more than save costs and improve operations – it also improves money management by freeing up otherwise trapped funds.
The cost inefficiencies of legacy payment rails are substantial for both payers and payees, according to Bornstein: "Not only is this annoying, but it costs consumers and businesses hundreds of millions of dollars in lost interest in Canada alone as their money is in motion and not working for them, enriching the banks who earn interest revenue on the float."
Real-time payments directly address this issue by minimizing the amount of time funds are trapped in transit.
With funds instantly available after an RTP transaction, businesses have more control and visibility over their cash positions.
The ability to precisely forecast cash flows based on actual account balances allows for more informed, data-driven financial decision-making. And having money readily accessible means the costs of short-term borrowing can be minimized, further optimizing liquidity and profitability.
5. Better supplier relations
Paying suppliers promptly is crucial for maintaining healthy business relationships and ensuring uninterrupted supply chains. The delays that come from traditional payment methods can strain those supplier relationships.
Real-time payments facilitate instant supplier payments whenever needed. Especially with today’s supply chain complications, having a payment line with suppliers open 24/7 can prevent logistical disruptions.
Instant payments between crucial partners enhance trust and transparency, and foster deeper collaborations. Empowered by RTP's speed and reliability, businesses can optimize procurement cycles and working capital usage with their key suppliers, as well as work around supply chain disruptions.
6. Enhanced customer experience
In today's experience economy, providing a frictionless customer journey is a big step to future-proofing your business.
In a payments landscape where digital payments are fast replacing traditional payment methods, “consumers can comfortably, conveniently, and confidently exist entirely digitally using their phone to pay by “card” at the point of sale, their bills through a QR code, their friends and family through an app, and recreational activities through P2M,” Bornstein notes. “What hasn’t yet changed in Canada is the speed with which those payments move.”
Real-time payments are the ultimate step towards a frictionless customer experience.
Jeremy Bornstein cites examples highlighting RTP's customer experience benefits: "What if you could pay a bill instantly the moment it is due instead of three days early. Imagine requesting your paycheck between pay cycles and being able to access your income in seconds."
7. High security and data protection
While traditional payment transactions like checks and credit card payments are sensitive to fraud, robust national RTP payment solutions offer enhanced security through the ISO-20022 standard.
RTP payment systems allow for real-time transaction monitoring, making detection of suspicious activity easier. They include multi-factor authentication, further enhancing security. Real-time payment networks use secure, encrypted communication and meet the highest regulatory standards.
Finally, RTP systems can use data protection technologies like artificial intelligence and machine learning, to build a safer payment infrastructure.
8. Improved competitive edge
RTP networks aren’t just a faster payment system – they fundamentally alter how payments work. Bornstein emphasizes this: "We see an opportunity for real-time payment functionality to extend to nearly every payment use case.”
Early adopters of RTP systems can outpace rivals through better cash flow management, operational advantages, reduced costs, and building better customer experiences.
9. Integration with new payment technologies
Along with the adoption of real-time payment infrastructures, we see the rapid rise of many new digital payment technologies – ranging from digital wallets and mobile payments, to P2P payment apps and decentralized cryptocurrencies. Jeremy Bornstein argues: "Not since the advent of digitization in the last quarter of the 20th century has there been more innovation and change in how we pay.”
A native digital payment option, RTPs extend the range of payment options small businesses can integrate and offer to their customers. Using RTPs and with the help of fintech solutions like Berkeley Payments, businesses can drastically improve their payment systems and build end-to-end payment solutions.
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