Real-time Payments: instant upgrade or instant mistake?

Our planet spins at 1,000 mph, and despite how crazy that might be to comprehend, in our era of instantaneous gratification, it seems that everyone, in every instance, wants to experience that same rapid thrill. We want it all, and we want it now!

However, anything we want comes at a cost – currencies and assets (the real forces which keep our world spinning) must pass hands. With them being so integral, and hence valuable to our society, how quickly are people willing to trade them to acquire the instant lifestyle they desire?

For an increasing amount of consumers and businesses alike, their adoption of real-time payments (RTPs) which operate 24/7 to initiate, clear and settle payments within seconds, shows where their allegiances lie. Demand for RTPs is so strong that recent research from Mastercard found that across the UK, Australia, Japan, Thailand, India and Mexico, 87% of people valued RTPs as much as access to the internet or greater.

With the number of countries facilitating RTPs quadrupling in just eight years, is the financial world ready to accelerate faster than ever before, or are RTPs set to see the spinning-top fly off course with disastrous consequences?

Let’s find out what the benefits of RTPs are and also the potential concerns, along with identifying ways to safely get up to speed with them.

Benefits of RTPs

As is so often the case with any financial initiative, there is more to RTPs than their name. So, beyond the imperative of speed, what can they achieve for financial institutions, businesses and customers?

• Good experience – beginning with the basics, RTPs deliver a smooth transaction process which matches so many other digital experiences. Fulfilling this expectation is crucial for banks and businesses alike to satisfy their customers rather than deter them with clunky, longwinded operations.‍

• Accurate forecasting – with funds being pushed into other accounts instantaneously, the flow of cash is literally accelerated thanks to RTPs. How transformational this is cannot be underestimated when considering that the average daily value of locked up money due to cheques being processed in Germany in 2016 was $654 million. Minimising delays regarding cash flow allows a better measure of liquidity to be calculated in real-time, having far reaching long-term benefits including improved forecasting and better budgeting. However, this is only possible for businesses with cash positions validated through equally quick reconciliation.

• Flexing capital – delayed payments across the globe can reach up to $3 trillion at any point in time but through RTPs businesses gain quicker than expected access to funds. This leads to positive impacts for them in the immediate which can support growth. For instance, due to their being no clearing time to receive payments, businesses can release trapped working capital such as backup cash contingencies and put them to work.

• ‍Counter rising interest rates – with interest rates seemingly creeping up every single day, everyone is conscious of where their money is held. Whereas in the past a three-day transaction process might have been a nuisance, now it could result in unwelcome additional costs as well. Through transactions initiating and closing quicker, RTPs take some of the stress away when it comes to higher interest rates.

• ‍Timely access – RTPs are not just about improving financial operations for existing stakeholders, they can also empower the underbanked. Unfortunately, being on a low or risky income can frequently lead to this demographic turning to payday lenders or their overdraft, should the clearing of their pay cheque not align favourably with their expenses, only doing more harm to their financial health. However, RTPs would help guarantee that people received their money when requested, rather than having to wait on antiquated processes. With 16% of American households being underbanked, making RTPs commonplace could directly improve the situation of millions, plus the economy as a whole by emancipating a huge population from financial exploitation.

• ‍Extra detail – beyond transferring funds instantly, RTPs also facilitate the high-speed exchange of dialogue and information in the form of messages. From ‘Request for Information’ to ‘Payment Acknowledgment’ messages, this makes the transferring of money a more human interaction, brimming with context. A massive benefit of this extra string to the bow of RTPs is that it can make identifying and managing exceptions easier, which can so often be short of vital information.

Always find your friend with an empty wallet when they owe you a tenner? One further small-scale benefit of RTPs is that could now be a thing of the past! Thanks to smartphones facilitating RTPs, peer-to-peer transactions are booming having grown by $12 billion in the space of 5 years.

Challenges of RTPs

In reality, the trading of metal coins and paper money has meant RTPs have been around for nearly 2,000 years but in their current digital form they do pose some complications:

• Complex systems – across the globe there are numerous banking systems, individual businesses which have their own payment setups, and regulators to comply with. Switching to a new way of transferring money therefore requires overcoming some serious interoperability issues. This is by no means an easy feat and is near impossible to do alone. As a result, creation of APIs and the costs which come with them have to be committed to by those wishing to offer RTPs.

• ‍Fraud – people can easily go under the guise of somebody else in the digital world. As a result, RTPs’ instant and irrevocable nature makes them extremely vulnerable to fraud should someone be able to hack into an account which they should not have access to. There is also the risk of Authorised Push Payment scams which is the most common form of payment fraud in the last 12 months. The magnitude of these threats is in fact so large that in a recent survey, 55% of Canadian companies not interested in RTPs cited them as a reason for their opposition.

• ‍Investment – compliance rightfully plays a very important role when it comes to the handling of assets. RTPs signal a new way for this to be conducted along with presenting a greater opportunity for cybercriminals to conduct institutional fraud. Teams involved with compliance will therefore have to adapt rapidly to new processes and make sure that they invest heavily in data and analytics. On top of this, they will have to work closer with payment providers to ensure that clean data is held by banks and exists for ‘Know Your Customer’ along with other downstream processes. Ultimately, for RTPs to operate safely, investment in compliance will be paramount.

• ‍Cross-border payments – transferring money across borders is difficult normally, doing so at speed only adds to their complexity. Exchange rates, different currencies, various regulations and unfamiliar infrastructures will all have to be navigated at speed for cross-border payments to operate in real-time. With there being so many factors to consider when it comes to cross-border payments, matching of an extremely high level and at a very fast rate, will be needed.

How to safely adopt RTPs

In a sector full of checking and double-checking, it is no surprise that many financially minded individuals do hold concerns over money passing hands at an increasingly fast pace despite the many benefits of RTPs. Fortunately, even when advancements occur with teething problems, a resolving innovation is never far behind.

To keep up with the new world’s appetite for speed driven by digitalisation, at Aurum Solutions we have restored balance to the equation with our own lightning-fast automated reconciliation software. With this in place, financial institutions and businesses dealing with high-volume transactions can safely adopt RTPs with peace of mind that no matter how many payments pass by on their watch, and no matter what format they are in, they are being checked thoroughly every single second.

Become part of the RTPs revolution

With nearly 80% of merchants believing RTPs will replace cards and the number of transactions via them estimated to hit 427 billion in 2026, businesses and consumers alike are set to move ahead with reaping the benefits on offer.

If you’re interested in how you can be part of the RTPs revolution whilst improving back-office efficiency and delivering security for consumers, we would be happy to help you.

At Aurum Solutions, for more than 14 years we have been transforming the manual process of reconciliation into an automated one which is done in seconds. As financial data matching software specialists, we put businesses in the driving seat with their data, ensuring compliance and control with a quality product tailored for each client’s needs.  

We work across industries and have a diverse client list including Octopus Investments, Admiral, Ladbrokes, and Versapay. Our partnership approach ensures we’re always on hand on your reconciliation journey. Let us help you on your digital transformation journey with automated reconciliation.  

‍Book a demo with us now.