The Rise of Real-time Payments: Understanding the Technology and Benefits
Real-Time Payments (RTP) is a concept that massively benefits businesses and individuals alike. Instantaneous transfers, while not historically new, have certainly evolved significantly over time. As of 2022, up to 72% of the world has a live or upcoming real-time payments infrastructure. Going beyond unifying payment partners, RTP is evolving to include:
- Signing up additional partners to expand the network reach
- Ability to address the needs of all customer groups (businesses, platforms, network participants)
- Include richer data in payment messaging
- Local to regional, moving beyond a country-by-country basis
- NBFI participation – RTP networks have expanded beyond traditional bank participation only, moving to a more inclusive structure for mobile wallets and other non-banking institutions
While establishing RTP on a national level is challenging, expanding it internationally brings about a whole new set of obstacles. Logical and technological differences between each country’s networks make real-time cross-border money transfers a pipe dream… till now.
What is a Real-Time Payments network?
To answer this question, we’ve come up with a checklist to see if a payments network truly runs in real time:
- Instantly initiated and settled: “Settled” is the keyword here, differentiating from the many payment methods which settle into a bank account in a batch process, only usable after a certain period.
- Able to execute 24/7, 365 days a year: Up-time is a key differentiator of a real-time payment network, given that a major hindrance of the legacy banking infrastructure has been the constraint of banking hours.
- Open-loop: While the adoption of e-wallets has been significant and provides real-time value, there is still a closed-loop in these networks. You and your payment beneficiary need to onboard yourselves to the platform to execute a transfer, and often need a “pre-funded” balance as well. With RTP, the settlement is done in a participating bank account, so there is no pre-funding and private network onboarding.
In some cases, mobile wallet companies and Non-Banking Financial Institutions (NBFIs) can be participants in an RTP scheme, but the majority of participants are still banks and bank account settlements. It’s important to note, the proliferation of mobile wallet onboarding / offboarding via RTP will be important for adoption, but mobile wallet transfers in themselves are not categorised as RTP.
This checklist is imperative in determining a “true” real-time payment network to avoid confusion. As noted in a report from a survey by PYMNTS: “44.7% of consumers report making at least one real-time payment in the month prior to the survey, yet 41% of these consumers — 18.2% of the whole sample — actually paid via methods that do not utilise real-time transactions.” We see two potential implications here:
- Real-time initiation expecting real-time settlement: If a small business owner expects that a payment will be received instantaneously, when in fact settlement occurs in their bank account two days later, it may cause cash flow shortages. Overdrafts, A/P delays, and credit risk are just some of the risks associated.
Real-time payment on a closed-loop network: While fast in nature, closed networks or wallet platforms offer transfers to other users on the platform itself. So, if a user sends funds to a new mobile wallet service that the beneficiary isn’t registered on, the latter would not be able to use the money immediately until an account is created and approved.
This map of national RTPs created by Thunes showcases major domestic RTP networks and can serve as a guide to real-time payments availability across the globe.
What are the benefits of Real-Time Payments?
We must address the obvious advantage of RTP: The payment is fast. In a peer-to-peer environment, the benefits are associated with a society that expects and demands real-time in all day-to-day activities. From PYMNTS: “15% more consumers would be likely to choose real-time disbursements if they had a choice now than the share who indicated the same last year.” This trend is heightened in the Millennial and Gen Z population; younger generations who have grown up with the Internet tend to be dissatisfied with waiting to transfer information from one place to another – payments being no exception.
The benefits to SMEs are even greater in the rapid payment and settlement. Tightening Payables / Receivables cycles, cash flow efficiency, forecasting, and process optimisation are just some of the benefits in the world of instant transfer settlement. Think about the coffee shop that needs a new shipment of beans each month but has to wait until their payments from last month settle in their account before they can settle payment with their supplier. RTP completely absolves this process. The coffee shop can get paid and instantly make a payment, thus allowing them to reinvest in their business and bring in more customers without fearing a shortage of supplies.
In a world where messaging drives the payments system and standards for messaging have improved and become standardised, synchronous messaging and settlement become feasible, which could be game-changing for consumers. Transaction messaging helps both the sender and beneficiary of the transfer identify:
- Who this transfer is intended for, and who it’s from
- Transfer status
- Unique references / identifiers
If all of that comes at the same time as the settlement of the transfer itself, this can enable simplified reconciliation and transparency.
Examples of Real-Time Payments
Our map included here showcases all global RTP networks and the Thunes coverage to transfer to these networks. The list is extensive, but let’s highlight just a few examples.
1. Fast and Secure Transfers (FAST) – Singapore
Launched in 2014, the FAST infrastructure has enabled 26 participating banks and seven non-financial institutions (mobile wallets) in Singapore to link into a transfer network that enables real-time payments 24/7 365 days a year across the country. “PayNow”, the customer-facing platform (“overlay service”) on the FAST infrastructure, is widely known and used. The usage is astounding – Fintech News SG noted that 80% of consumers and businesses are using the payment scheme. Given the involvement and encouragement by the central bank of Singapore (MAS) and its creation and adoption by the country’s largest banks, its success comes as no surprise.
FAST recently integrated with PromptPay in Thailand to offer RTP cross border between two highly transacted markets. Now, FAST is continuing this expansion with a link to UPI in India and Malaysia’s DuitNow in 2022. This will create additional connectivity between international markets, expand RTP capabilities beyond regional reach, and be one of the early steps towards proper interoperability.
2. New Payments Platform (NPP) – Australia
Australia upgraded its payment system in 2018 with the introduction of NPP in partnership with the Reserve Bank of Australia. With this partnership, Australia began offering real-time settlement with enhanced transaction messaging. As noted by the Reserve Bank of Australia, government and consumers have supported the adoption. Notably the Australian government made $12 billion in payments made through NPP for COVID-related support in 2021. On the consumer side, 90 million customer accounts at 107 Financial Institutions. NPP has a vast roadmap in place to enhance the capabilities of the network, offering third-party authorisation and the implementation of simpler beneficiary identifiers than the Bank State Branch (“BSB”) number of the bank and the account number. This follows the example of FAST (above), where a phone number is the identifier of a recipient.
3. Interbank Electronic Payment System (SPEI) – Mexico
Sistema de Pagos Electronicos Interbancarios
This payment network was implemented quite early, launched in 2004 by Mexico’s central bank, and gradually incorporated improvements over time. The scheme runs on very frequent batches to process, where participants can assign priority to the transfers for settlement within 30 seconds after a payment request is made. The “CLABE” number is necessary to input for a beneficiary, which is a combination of bank, branch and account number. Mexico has had lower adoption of the network due to the largely unbanked population, a hurdle restricting utilising this network. As of 2021, only 37% of the population had a bank account. So, while the network offers simplicity and speed, there is still a reliance on banking which is not yet reached in Mexico, resulting in lower usage.
4. Faster Payments – UK
Introduced in 2008, the Faster Payments Service enables 37 participating institutions to process almost all payments in real-time, with some transfers taking up to two hours to process. The network also enables flexibility to process future dated transactions as well as recurring payments and bulk payments (via file upload). A “sort code” is necessary to input for a beneficiary, which includes the encoded bank/branch (similar to “CLABE” above). The adoption of the network includes banks and fintechs alike, with transaction limits as high as £1 million (an increase from £250,000 in February 2022). Adoption has been steadily increasing, with Q1 2022 processing £912 million payments through Faster Payments, accounting for £728 billion, a 22% increase from Q1 2021.
5. Future use cases
There are a number of networks slated to launch in late 2022 and 2023, most notably FedNow in the United States. Some prevailing factors to note about this network:
- Competitive fees: $25 monthly bank participation fee (to receive transfers); $.045 transfer fee paid by send; $.01 paid by the requester of a payment.
- Fintech participation: Q2 Holdings and Block are two of the prominent members of the pilot program for FedNow, showcasing adoption by the payments tech community.
Transparency: Transparency of payment flows, pricing, participation requirements, and road-mapped features has been a clear interest of the Federal Reserve Banks creating this network. Moreover, the interest in speed to market before adding all features necessary shows an agile nature surrounding this RTP rail, signalling a clear value of rapid development and iteration based on the customer.
With these elements in mind, the adoption of FedNow will likely be widespread, reaching regional banks and consumers in markets across the US. Inclusion is a high priority of the FedNow network, and the focal points mentioned will be additive to the conversion of this goal.
Global Real-Time Payments: The challenge
An undeniable difficulty surrounding the development of RTPs is their inability to “talk” to one another. The fragmented nature of payment networks across the globe has not changed in the expansion of RTP. Real-time payments, and the concepts discussed herein, are still not addressing a global payment market perspective. They are inherently local.
- Central Banks have an interest in exercising control over the process in their own jurisdiction. If a network expands beyond the country, the Central Bank is no longer the ultimate rule-maker.
- Consumer preferences are vastly different, and payment flows are unique across regions. Moreover, the banks themselves are different; thus, the participants in a payment scheme are different across markets.
- Technical feasibility and technological know-how vary in different regions. Countries have their own set of integration rules, governance, technology advancement, and system processes.
Yes, there have been links across RTP networks, as we described earlier with FAST to Promptpay, India’s UPI and Malaysia’s DuitNow. There are still inefficiencies and fragmentations in this approach. How do you process payments globally? How do you dissolve borders? In fact, that is not what RTP is designed to address, and global payments are still meant for traditional payment rails.
On this note, is RTP truly an “open-loop” as described? Maybe more open than a private network, but certainly not a standard that can be simply extended beyond a country-by-country network. While RTP creates massive efficiencies and benefits, the interoperability gap between these networks remains. Moreover, mobile wallets that are not connected to RTP networks cannot participate in the scheme and easily offer this to their customers. In a world of increased globalisation and cross-border commerce, attention to the expectation of real-time needs to be paid to cross-border payments, just like in country-based RTP.
The cost of integrating local Real-Time Payments
Whether you are a bank, a fintech, a marketplace, a social media platform, an e-wallet, or an ecommerce business, integrating one or many RTP networks to make or process payments faster will imminently become part of your business plan. Serving international customers or expanding into new markets necessitates moving funds efficiently to new markets, and RTP networks are certainly optimal to ensure arrival timing and quality of service.
But this begs an assessment of the cost/benefit of the effort required.
✔️ Your benefits are clear:
- Faster fulfilment: Especially for high velocity of transactions, efficient and swift fulfilment of transfers are optimal for customers, suppliers, merchants, etc.
- Transparency: ability to move rich data that can provide actionable insights into client needs, particularly corporate customers.
- Payment Confirmation: Ability to confirm payment without tracking the transaction. With RTP integration, platforms can be assured the beneficiary account has been credited with the value.
- Loyalty and Retention: By offering the value described, customers are more likely to return to the platform because stability and speed are ensured in their payment.
❌ However, the costs are high as well:
- Resources: Time and money investment required to connect to local networks is often significant and would need to be repeated across each local jurisdiction.
- Fragmented rules: Integrating with a local RTP network means working within a particular framework that this network has enabled. This presents a sizeable technical investment to integrate sufficiently and ensure compliance with the protocol of these rails. And, of course, this is just for one country and one network – imagine repeating the effort multiple times
- Regulatory Requirements: To operate in a local jurisdiction, companies will likely need licensing and/or bank accounts in that region. This is another costly endeavour.
- Customer Management: There is a responsibility to simplify the experience for a payment customer, requiring additional local knowledge to ensure that payments passed to the network will be successful: Fields to include, beneficiary details to ask, etc.
How Thunes makes global real-time payments seamless
Scale faster and cut through complexity – with a single connection
Avoid endless integrations, ongoing infrastructure investment and the complexity of local compliance requirements. With a single, seamless integration via our secure API, you can easily connect your back-office systems with ours and access the entire Thunes network.
Thunes is opening the loop between RTP networks across the globe. As just one example, we enable a sender using FAST in Singapore to pay to a beneficiary on the SPEI network in Mexico. The integration is simple, and your business does not have to be concerned with the technical burdens of integration, network frameworks, or local compliance. One integration with our API gives you the world. Scale your business efficiently, let us know where you want to send and allow Thunes to focus on the intricacies of local markets to make it happen.
As an example, take a look at our case study with UNFCU. Among other payments, we help move funds internationally to members of the UN in the UK and France via RTP networks Faster Payments and SEPA. Doing this directly would require bank accounts, international entities, local knowledge and contractual obligations, and much more.
We’re constantly adding new partners and payment methods – so we can scale, adjust and customise our solutions for you. No network management, no operational worries, no fuss – just leave it to us.