Real-time payments are processed instantly and continuously. Advanced systems are used to transfer funds from one account to another, furthering the process. Businesses are recognising the benefits of using this technology and are replacing their traditional payment systems with the same. Statistics reveal that the global real-time payments market size stood at USD 17.57 billion in 2022. It is anticipated to grow at a 35.5% CAGR between 2023 and 2030.
This article discusses how these payments are processed instantly, why they are gaining popularity, the networks supporting them, and more.
Defining Real-Time Payments
Real-time payments are redefining the traditional banking norms. Unlike conventional payment transactions, you don’t have to wait hours to receive a payment made through bank transfer. It transfers the funds within seconds at any hour of the day. The advanced system even processes the payment on weekends and bank holidays. Numerous banks around the globe support this new and improved payment processing technology. The RTP system is mostly managed by a financial authority and operated centrally.
Quick money transfers improve cash flow, speed up the administrative processes, and streamline eCommerce and other payment transactions. It also lowers the risk of payment default as the transaction is completed immediately. The chances of payment reversal are eliminated. The technology is being used to process utility bill payments, salaries and retail payments. Reports suggest that 84% of all electronic payment transactions in India are done in real-time.
How Real-Time Payments Are Processed?
Now, we know that real-time payments enable instant funds transfer. But how are these payments processed? Here’s a stepwise look at the procedure:
1. Payment Initiation
The process starts with the sender transferring the money to the recipient’s account. Different platforms make it easy to initiate payments. You may do so through mobile applications, online banking, and even in person. QR code payment options are available on these platforms for a seamless payment experience. The transaction can also be initiated by entering the account number and other details on an annual basis.
2. Authentication
Next, the payer’s bank authenticates his/ her identity. Authentication is done by seeking information such as passwords and biometric data.
3. Authorisation
After verifying the payer’s identity and assessing whether sufficient funds are available in their account, the bank authorises the transaction.
4. Transaction Processing
Thereafter, the bank sends instructions to make the payment through the RTP system. The transactions are processed one by one in real-time. The payment processing is done continually.
5. Settlement and Payment Confirmation
As soon as the payment instructions are received, the payee’s bank transfers the funds to the payer’s account. A message confirming the transaction is sent to both the payer and payee immediately after it is successfully processed. They may be notified through email, SMS or push notification. This feature is necessary to confirm the transfer of funds. It enhances the experience for both parties.
Key Global Networks Supporting Real-Time Transactions
Different countries have different real-time payment systems in place. Although the basic features of these systems remain the same, they come with certain unique features that match regulatory norms and local needs. Here is a look at some of the payment systems launched by different countries around the world:
1. Faster Payment System – United Kingdom
This real-time payment processing system was launched in the United Kingdom in 2008. Managed by Pay.UK, it facilitates instant payments between accounts in various British banking institutions. The Faster Payment System allows for single immediate payments, standing orders, direct corporate access, and forward-dated payments. It has set a limit of 1,000,000 pounds per transaction. Before this system, banks in the UK took around three days to transfer funds.
2. Immediate Payment Service – India
It enables instant fund transfer between different banks in India, 24/7. The system launched by the National Payments Corporation of India provides access to IMPS via mobile phones, SMS, web, and ATMs. Any bank that wants to implement this payment system should obtain a valid prepaid payment instrument license from the Reserve Bank of India.
3. The Clearing House’s Real-Time Payments System – United States
The Clearing House in the United States launched a real-time payments network in 2017. The membership organisation owned by major banks in the United States created the system to address the issues faced during wire transfer and ACH. It enables the instant and cost-effective transfer of funds.
4. FedNow Service – United States
The Federal Reserve has launched this instant payment service. It facilitates immediate, real-time payments for different eligible depository institutions in the U.S. Several banks and credit unions in the United States have adopted the FedNow Service for the convenience of their customers.
5. PayNow – Singapore
This real-time payment system was developed by the Association of Banks in Singapore and is supported by all major banks in the country. Launched in 2017, it enables interbank person-to-merchant and peer-to-peer fund transfers. Payments can be made to any registered mobile number in Singapore, NRIC, Virtual Payment Address, or corporate Unique Entity Number.
6. Pix – Brazil
Banco Centro do Brasil launched this instant payment system in 2020. Companies, individuals and government entities in Brazil can make payments 24/7 using this system. Pix processes payments in seconds, even on public holidays and other non-business days. It has a user-friendly interface, which adds to user convenience.
7. New Payments Platform – Australia
Using the New Payments Platform, Australians can transfer funds instantly to bank accounts held by Australian financial institutions. A unique feature of this real-time payment system is Payid, which allows customers to make payments with ease.
Advantages of Real-Time Transfers
Here is a look at the various benefits of real-time transfers:
1. Instant Transfer of Money
Real-time transfers allow money to move immediately from the sender’s account to the receiver’s. There’s no need to wait for hours or days, unlike with traditional transfers. This helps people and businesses manage their needs quickly.
2. Better Cash Flow
As businesses get their payments quickly, they can pay bills, manage salaries, and handle expenses with greater ease.
3. Payment Certainty
When the funds are transferred instantly, it lowers the chances of theft during the processing time. The possibility of delay from the sender or the financial institution’s end is also ruled out. The recipients are certain that they will receive the payment quickly.
4. Increases Efficiency
RTPs are processed instantly through an advanced system. They do not require human intervention for processing the payment. This reduces the scope of error, thereby improving efficiency.
5. Round-the-Clock Transactions
Traditional payment systems process the payments only during business hours and on business days. This delays the payments further. However, there is no such issue limitation in real-time payment systems. They enable sending and receiving money 24/7.
6. Enhances Customer Experience
Not only do businesses benefit, but customers also benefit from using these advanced systems. They can make instant payments anytime, anywhere. This gives them instant access to the product or service they have purchased.
Common Challenges Faced by Real-Time Payment Systems
RTP systems offer several advantages. However, they also pose certain challenges. Here is a look at the same:
- Businesses require substantial investments in technology to implement and use real-time payment systems. Thus, it adds to the cost.
- Ensuring these systems interact seamlessly with various domestic and international payment systems can be challenging.
- With various upgrades being made over time, these systems are subject to different regulations. Banks require keeping pace with the changing regulatory norms and complying with them to use RTPs smoothly.
- Though most of these systems boast robust security features, there is always a risk of cybercrime. Since the transaction is processed quickly, there is very little time to detect fraudulent activities.
- Another challenge is to educate the customers about the usage and benefits of RTPs. While the urban population has become familiar with its use, most people from small towns are hesitant to use it.
How Shiprocket Checkout Supports Instant and Seamless Payments?
Shiprocket Checkout offers multiple payment options, including credit cards, UPI, and wallets, to make transactions quick and easy. Our system is designed to work seamlessly on mobile phones and other devices. We offer secure payment gateways and provide real-time transaction updates to enhance customer experience. Our shoppers are not redirected to any external site for completing the payment process.
Many businesses are adopting Shiprocket Checkout to enable instant payment processing. Our one-click payment and saved cards features are particularly popular as they add to the convenience and speed up the process. Those that have implemented Shiprocket Checkout have witnessed a decrease in their cart abandonment rate and an increase in their ROI. The system is easy to install and manage. Our customer service team is always available for help.
Conclusion
Real-time payment systems are gaining popularity, with an increasing number of businesses adopting them worldwide. Instant payment processing offers convenience to both companies and customers. It involves various steps, including payment initiation, authentication, authorisation, processing, settlement, and confirmation. However, all these steps are completed in a matter of seconds. Instant fund transfer, better cash flow, payment certainty, and increased efficiency are among its benefits. Though it requires substantial investment and compliance with various regulatory norms for implementation, businesses around the world are adopting it.
