On the surface, many digital payments appear as instantaneous as cash. When the money leaves your account through a credit, debit, or e-wallet transaction, you assume it ends up in the seller’s pocket. Many times, however, digital transactions are actually tied up in bank settlement processes down the line. Some transaction methods are notorious for delays, even if they are digital versions of transactions that used to be done through bank drafts or promissory notes. Wire transfers and ACH (Automatic Clearing House) payments, for instance, can’t be processed on weekends and holidays, or are processed in batches over several days.
Those time lags create big headaches for retailers, employers, and vendors. People need money when they need it – to pay bills, rent, and suppliers. For merchants, settlement delays create uncertainty regarding cash availability and cash flow. Even worse, friction in the payments process can negatively impact a customer or employee relationship. Given the rising popularity of digital payment options during the pandemic, and the hype around the convenience of digital, it can be a shock to find out that one of its best features – speed – is not being maximized in the payments context.
Real-Time Payment – For Real
Thankfully, Real-Time Payments (RTPs) are becoming more widely available. These are payments that are initiated and settled instantly, 24/7, 365 days per year, between bank accounts. The RTP rail is digital infrastructure that allows payments to happen in real-time, with funds transferred and settled instantly between those accounts.
India is currently the world leader in RTPs, and more and more countries are supporting them. A report by Grand View Research valued the market for RTPs at $13.55 billion USD in 2021, and forecasted a compound annual growth rate for the RTP market of 34.9% from 2022 to 2030.
Faster, Easier, and More Transparent
Unlike paying through apps or cards where payers are required to maintain a balance, RTPs are connected directly to bank accounts. They’re also irrevocable. Because RTPs can only “push” funds towards other accounts, they are final, with funds being made available in real-time.
That explains why they’re so great for making person-to-person payments – probably the biggest use case so far. Individuals love the ease of RTPs for making casual payments among friends – to split a restaurant or hotel bill, to chip in for gas, or to send a remittance or give a gift. However, retailers, employers and governments are starting to see the benefits of RTPs for making fast digital payments in more situations.
For one, RTPs improve the communication between payers and payees. For retailers, direct contact means there’s an opportunity to develop a relationship. That can’t happen when there’s a third party card or other payment service intervening as an in-between and slowing down the payment process.
The use of RTPs also improves the relationship between businesses and their employees. Employees know all too well how long traditional payroll procedures can take. They’ve booked the hours, but cheques and direct bank deposits often come several weeks later. That’s a drawback for employers that hire occasional staff. Gig workers increasingly rely on payroll on demand for convenience and necessity and companies that pay through RTPs could be more attractive. In today’s job climate, where finding and keeping staff can be a challenge, RTPs can make a big difference.
Real-time payments also improve business forecasting and liquidity management. It can be challenging for companies to juggle supplier invoices, purchase orders, sales, and payroll. With real-time payment, owners have an accurate picture of cash flow and reconciliation. That clarity reduces risk, streamlines accounting, and builds stronger, trusting relationships with vendors, customers, and staff.
One of the biggest benefits of RTPs is that they are data-rich. Payments carry transaction information, and there’s an opportunity to embed more detail. Having more information increases transparency on both ends of the transaction, and helps with record-keeping.
Canada – Soon to Ride the Real Time Payments Rail
These advantages are currently available in 56 nations worldwide, and many more are currently developing the necessary policies and interoperable infrastructure to support RTPs. In 2023, Canada will join those ranks with the launch of its first national RTP system – Real-Time Rail (RTR). The RTR will be operated by Payments Canada and overseen by the Bank of Canada. Canadians will soon have the management
Besides the ease, convenience, and added clarity, modernizing Canada’s payment system with RTP will give Canadians the choice to access payment options from more providers, and from businesses besides banks. Opening the rail to more players will support payments innovation and variety in Canada, with improved products, more services, and added functionality. With strict requirements for payments providers, Canadians will have the payment security they’re accustomed to, but with money sent and received in real-time.
The Future of Payments is Real-Time
RTPs are making transactions easier, faster, and more efficient across consumer and business segments. Expectations for digital technology rose steeply during the pandemic and shoppers, workers, and businesses want their account balances to mean what they say they do. This is as true in Canada as it is in other countries. Seamless digital payments with real-time settlement are already starting to meet those expectations, with more payment innovation to come.