Real-time payments have revolutionized the way banks and other financial institutions conduct transactions. In today's fast-paced world, customers expect instant gratification and real-time payments provide just that. Simply put, real-time payments allow for instant transfer of money between bank accounts without the traditional lag of reconciliation of funds on either side of the transactions -- common in wire transfers, but also in payments to billers, creditors, and vendors.
Real-time payments work by enabling funds to be transferred instantly between bank accounts, typically using electronic payment networks. Real-time or instant payments make it convenient for customers to send and receive money at any time of the day, delivering instant access to funds and instant reconciliation of payments to ensure the most current accounting for any bank, business or individual.
While instant payments are relatively new to the U.S. market, in truth, real-time payment networks have been a staple outside the U.S. for many years. The first real-time payment network was introduced in Japan in 1973 and many other countries soon followed suit, with billions of transactions flowing through real-time systems across many different use cases. Today, there are 79 countries with a real-time payment scheme in production.
With the launch of The Clearing House’s RTP network in 2017 and the availability of the Federal Reserve’s Fednow system in 2023, U.S. financial institutions can now provide their customers with instant money movement and settlement, delivering many benefits and driving deeper customer satisfaction.
While real-time payment networks are available today, connecting a bank’s legacy payment technology to these networks has been easier said than done. U.S. financial institutions continue to lag in implementing real-time payments as a customer offering, given the perceived technological, financial, and security fears of replacing or modernizing legacy tech to catch the instant payments wave.
According to the article, FedNow draws some banks, as others lag, speaking specifically on FedNow adoption to date in the US:
“There are nearly 10,000 banks and credit unions across the country, so the bulk of them are not on board. And of the ones that have connected, many are only receiving payments and haven’t set up their systems to send payments.”
Also, from a recent Accenture commercial payments survey, six out of 10 banking and payments executives across all markets agreed that their organization struggles with the slow provisioning of new payment solutions due to a legacy tech stack.
Instant payments have become a customer expectation, so even bank leaders with concerns about cost, speed to market, process optimization, and data security are re-examining the case for why providing instant payments is critical for their long-term success.
Forward-thinking financial institutions are overcoming these challenges by leveraging cloud-based applications, silo-busting data connections via Application Programming Interfaces (APIs), and expanding messaging formats like ISO 20022 to bring legacy technology into the modern payments landscape.
Answer: Your customers expect it and will move to another bank or a payments application company and avoid banks altogether if they can’t get it. According to a Federal Reserve study, approximately 70% of retail customers consider faster or instant payments an important satisfaction driver. On the commercial side, a survey from The Clearing House showed that 69% of large businesses are currently adding or plan to add instant payment capabilities in the next 12 months
Business customers prefer real-time payments providers because:
The benefits of implementing instant payments are clear:
Improved customer satisfaction, reduced operational costs, increased competitiveness, and enhanced risk management. Banks that embrace instant payments and invest in the necessary infrastructure and technology will be well-positioned to thrive in the digital era and meet their customers' evolving needs. By staying ahead of the curve and offering real-time payment solutions, banks can drive growth, innovation, and success in the dynamic and competitive financial industry landscape.
The rapid evolution of payment technology demands forward-thinking strategies. Our guide offers detailed insights to help you modernize your systems and keep pace with industry advancements. Prepare for the future—download your guide today!
Learn more about the REN Payments platform here.
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