By Lissele Pratt, Co-Founder at Capitalixe

Real-time payments are revolutionising the way we think about money and its movement. They are no longer a futuristic concept but a reality shaping the future of the payments industry as we know it. The ability to transfer funds and make payments instantly, with near real-time confirmation, has the potential to greatly benefit consumers, businesses and the economy as a whole.

So we’re exploring the technology behind real-time payments, their advantages, and the challenges that must be overcome to realise their potential fully. We’ll also look at how real-time payments are being used today and what the future holds for this innovative payment method. Let’s dive in!

How Real-Time Payments Work

Real-time payments, also known as immediate payments, are electronic payments that are processed and settled in near real time. This means that funds are transferred and made available to the recipient within seconds or minutes, as opposed to traditional payment methods such as ACH or wire transfers which can take several days to clear. The technology behind real-time payments is based on a combination of real-time gross settlement (RTGS) systems, messaging protocols, and interbank networks.

The market for real-time payments is expected to grow significantly in the coming years. According to a recent report, the global real-time payments market size was valued at $13.8 billion in 2021, and is projected to reach $123 billion by 2031, growing at a CAGR of 24.5% from 2022 to 2031. This growth is driven by increasing demand for faster and more efficient payment methods, as well as the rise of digital technologies and the shift towards cashless societies.

Advantages of Real-Time Payments

Real-time payments offer a number of advantages over traditional payment methods. One of the most significant advantages is the immediate funds availability. With real-time payments, funds are transferred and made available to the recipient within seconds or minutes, allowing faster and more efficient transactions. This can be particularly beneficial for businesses, as it allows them to access funds and make payments more quickly, improving their cash flow and helping them to better manage their finances. According to a survey conducted by ACI Worldwide, 77% of merchants worldwide are expecting real-time payments to replace physical payment cards, as it is becoming more and more popular globally. In fact, in 2015, only 14 countries had the capability to enable real-time payments, but today, 56 nations have enabled this function.

Another advantage of real-time payments is increased security. Because these payments are processed and settled in near real-time, there is less opportunity for fraud or errors to occur. Additionally, real-time payments can be authenticated and authorised using various methods, such as biometrics or one-time passwords, providing an added layer of security.

Real-time payments also provide an improved customer experience. With the ability to make payments and transfer funds instantly, customers can complete transactions more quickly and efficiently. Additionally, the ability to receive real-time notifications of payment confirmations can give customers peace of mind and greater control over their financial transactions.

Real-World Applications of Real-Time Payments

Real-time payments are being used in various industries and businesses today, and their use is likely to expand in the future. Some examples of industries currently using or planning to use real-time payments include:

• Retail: Retail businesses can use real-time payments to process transactions more quickly and efficiently, improving the customer experience and reducing the risk of fraud.
• Banking and finance: Financial institutions are using real-time payments to improve their own internal processes, such as the settlement of securities transactions, and to offer new services to customers, such as real-time account-to-account transfers.
• Government: Governments are using real-time payments to improve the delivery of public services, such as the disbursement of welfare payments and the collection of taxes.

These are just a few examples of the many ways in which real-time payments are being used today. As the technology and infrastructure behind real-time payments continue to evolve, the possibilities for future uses and implications for the broader economy will likely expand.

Building the Future of Real-Time Payments

As real-time payments continue to gain popularity and widespread adoption, industries and businesses need to consider ways to further improve and expand the technology and infrastructure behind it. Some considerations for building the future of real-time payments include:

• Investing in better infrastructure: As the demand for real-time payments continues to grow, it’s important for financial institutions and other organisations to invest in the necessary infrastructure to support the increased volume of transactions. This includes upgrading systems and networks to handle the high speeds and low latency required for real-time payments.
• Developing new technologies: The technology behind real-time payments is still evolving, and new innovations such as blockchain and artificial intelligence (AI) could further enhance the speed, security, and efficiency of these payments.
• Improving interoperability: To fully realise the potential of real-time payments, it’s important to ensure that different systems and networks can communicate and work together seamlessly. This includes developing standards and protocols to facilitate real-time payments across different countries and currencies.
• Compliance with regulations: As with any financial service, real-time payments must comply with local and international regulations, including data protection and anti-money laundering laws. Financial institutions and businesses must ensure that they meet these requirements and keep up with any updates or changes.

Building the future of real-time payments requires a holistic approach that takes into account the various factors that will impact its growth and development. By investing in better infrastructure, developing new technologies, improving interoperability, enhancing customer experience, and complying with regulations, industries and businesses can help to ensure that real-time payments will continue to evolve and deliver new opportunities for the broader economy.

Final Thoughts

Real-time payments are changing the face of the payments industry in a big way. They offer a more efficient and secure way of conducting transactions, which greatly improves the customer experience and enables businesses to better manage their finances.

The technology behind real-time payments is still developing, but it is showing enormous potential for future growth and expansion. As more and more countries are embracing real-time payments, it is becoming increasingly crucial for businesses and financial institutions to stay ahead of the curve. The future of the payments industry looks promising with real-time payments playing a vital role in it.

About Author:

As Co-Founder at Capitalixe, Lissele Pratt helps international companies access the latest financial technology, payments, and banking services globally.

With 7+ years of experience in the financial services industry and her global perspective, the entrepreneurial-minded Lissele is a recognised expert in financial technology, business development, and relationship management.

She has a proven track record in developing and executing successful sales strategies and building and maintaining key relationships with clients, prospects, partners, and other stakeholders..