Gone are the days when your only option to transfer money relied on e-check or withdrawing cash from the bank, both of which took time and effort. Real-time payments, which are nearly instant transfers between institutions, are revolutionizing the way people move money. This efficient payment processing also introduces a new level of disruptive innovation in business.
Popularity in real-time payments has boomed in recent years. The Clearing House reports that transactions on their real-time payments network accounted for $29 billion in Q2 of 2023, up from $18 billion in Q2 of 2022.1
The growth of real-time payments has been driven by a number of key factors.1
These include:
Real-time payments are those made between banks or other financial institutions that are initiated, cleared, and settled almost immediately at any time of the day or night, seven days a week, 365 days a year. This contrasts with checks, which often take several days to clear through the banking process, or cash which, although immediate, is not always a convenient way to pay, especially for larger sums.
Real-time payments systems have been set up by financial providers to offer an almost instantaneous form of money transfer, largely driven by the demands of business to improve cash flow and simplify business operations. In recent years, improved technology has made the functionality of real-time payments both possible and effective and has resulted in increased adoption rates and accelerated usage across the business world.
Real-time payments refer to payments processed instantly, while an ACH payment can take hours or days. ACH payments are processed in batches, meaning there is some lag time between payment intervals. The real-time payments occur upon initiation, so your recipient will receive the payment in seconds.
All real-time payments involve five parties:
The process by which real-time payments work is very simple. First, the payment is initiated by the payer and then authorized by the payer’s bank or financial institution. Next, a message is sent via an underlying real-time payment network, during which time it validates the message and confirms the liquidity. The payment is then either accepted or rejected if insufficient funds are present in the payer’s account. The funds are then transferred to the payee’s bank account and a payment notification is sent to the payee as confirmation.
Enterprises are adopting new technology, ensuring real-time payment infrastructure can support both payers and payees in making and accepting a variety of payments. It is generally very easy to set up online payment processing for real-time payment transactions – and well worth developing a better understanding of exactly what online payment processing entails, and the many benefits it provides businesses.
Real-time payments systems and electronic payment options have a range of advantages for both customers and enterprises.
Real-time payments may help a business:
Of course, there are also possible risks and drawbacks:
There are several payment scenarios which could benefit from real-time payment processing, including:
Real-time payments present opportunities for businesses to win, serve, and retain customers through more efficient, secure, and engaging commerce experiences. This can be due to the following factors:
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