The Real-Time Rush: What’s Fueling the Growth of Real-Time Payments?

Digital has changed the game for everyone.

The payments industry is no exception. If you think about it — in recent years, we’ve had innovative solutions taking over the payments ecosystem at such a dizzying pace that it has transformed the way we pay, in ways once only imagined.

The world today operates at light speed and if you ask me, the race to make payments faster is heating up like never before. The promise of faster payments is finally coming to fruition. According to ACI Worldwide, the global transaction volume for Real-Time Payments (RTP) will grow to 511.7 Billion by 2027, accounting for 27.8% of all electronic payments.

Elena Whisler, Senior Vice President at The Clearing House believes that real-time payments are all set for explosive growth:

“RTP network volumes will “at least” double over the next year, driven by growth in the account-to-account (A2A) space and corporate disbursements.”

So does this mean cash is on its way out?

While cash has stood its ground as a preferred and trusted payment transaction instrument, with most transactions no longer occurring in person, alternative payment methods are making their way to the forefront.

Real-time payments, in particular, are setting a new benchmark with customers, merchants, and financial institutions expecting to pay peers, settle bills, and transfer funds at the drop of a hat.

Talking about the financial services industry, over the years, with markets becoming more interconnected and sophisticated, payment delays started to set in. Even with electronic fund transfers coming into the picture, owing to batch-based processing, the clearing of payments continued to take longer.

All this is about to change with the growing prominence of RTP.

Real-time payments not only remove technical bottlenecks, expediting the availability of funds but also brings in a greater level of convenience to complete transactions.

On the fast track: Real-time payments are taking off

We can be sure of one thing — with the concept of ‘paying now’ gaining momentum, real-time payments have gone way past the early adopter stage.

Statista’s report on the world leaders in real-time payments saw the Asia-Pacific region making considerable headway. India tops the charts with the highest real-time transaction value at a whopping $25.5 billion, followed by China and South Korea.

Source: ACI Worldwide Report: Prime Time for Real-Time Global Payments Report

The Clearing House’s (TCH) RTP clearing and settlement system, is a promising solution that caters to the growing need for faster payments in the United States. But they aren’t the only players setting the stage to move money faster. MasterCard Send and Visa Direct are two other offerings that expedite the exchange of funds between end users.

Add to that, the Federal Reserve’s FedNow Service launched in July 2023, the U.S. is on the right track and can no longer be counted as an underdog in this race to real-time.

What’s driving this unprecedented growth of real-time payments?

In today’s era of immediate gratification, customers hold real-time expectations. Buying happens almost instantly now — all it takes is a few taps on your phone, and in just a few minutes your service will show up at your doorstep, be it a ride from Uber or food from GrubHub.

The rising ubiquity of smart devices and (not to forget) the snowballing effect of the pandemic has only accelerated the shift from traditional cash and checks to real-time payments.

Here are two of the main reasons for this growing shift to real-time payments:

1. Mounting customer and merchant expectations: Now, there is a growing need to make payments and access funds, instantly. While for customers ease and convenience of RTP do the job, for merchants, it’s the immediate inflow of cash and lower transaction fees that win them over.
2. The proliferation of smartphones: Globally, smartphone penetration reached over 78% in 2020. With multiple P2P apps entering the scene, real-time payments are now an expectation.

In addition to these, new startups and business models, and regulatory pressures are accelerating the push toward faster payments.

It’s prime time for real-time

The last two years have redefined the payments landscape.

Real-time payments have entered a league of their own, and before you know it, global economies could be more fluid than ever before.

Will real-time payments become the de facto way to send money? Only time will tell.

Having said that, real-time payments will pave the path for new spending patterns and consumer behaviors.

To all the payment players out there, capitalizing on this payments revolution will set you up for success in the years to come!

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