Real-time payments have been a significant goal of the industry for some time, and they are fast becoming a reality. As we approach this innovation milestone, it’s worth taking a step back and trying to understand more about what real-time payments mean and their potential impact on e-commerce.
A recent whitepaper, jointly written by NACHA and the Payments Innovation Alliance, takes a closer look at the implications of rolling out a real-time payments system for all industry stakeholders, including merchants, consumers and financial institutions/third-party processors. The two organizations attempt to define the parameters of real-time payments, in addition to outlining the challenges of implementing real-time payments in the U.S.
What Are Real-Time Payments?
As defined in the paper, a “real-time payment is an immediate, irrevocable, interbank account-to-account transfer that utilizes a real-time messaging system connected to every end-user through a financial institution, third party, or another real-time system.” This includes immediate confirmation of fund availability and credits. Transactions can be completed at any time of day, seven days a week. Additionally, all banking information for both sellers and buyers is kept private.
While the concept sounds simple, deployment and implementation are expected to be less so. It’s good to highlight some of the essential elements of the system in order to be better prepared to meet the upcoming challenges.
There are currently three main components to a real-time payments system: authorization, posting and settlement. Ideally, the first two parts of the system should be done in real time. According to NACHA, for settlement, most real-time payments systems currently deployed use deferred net settlement methods.
Another consideration to take into account is security. According to the paper, the most easily secured transactions at this point are credit or “push” transactions. This is because they offer over-all better security against hackers and fraudsters. The authors note that there are only a handful of global systems which offer real-time, payer-authorized debit.
Benefits for Stakeholders and E-Commerce
So what can both businesses and consumers expect from the new era of real-time payments? There are a number of potential benefits for both.
For businesses, benefits include improved payments reconciliation and increased flexibility in data to achieve greater STP. For customers, 24/7 payments functionality and increased access to innovative payment products should make a big difference to payment habits.
Real-time payments should also impact the e-commerce experience as a whole, especially when it comes to costs. For example, the development of real-time payment capabilities should help e-commerce merchants reduce costs. This would, in turn, increase merchant working capital and allow online stores to lower prices or offer discounts to consumers that choose to pay with a real-time payment.
As the payments industry is well aware, consumer and business expectations are constantly evolving. These expectations drive payments industry innovation, including our own. For Credorax, the first step in faster payments is establishing a single-source platform that provides 24/7 availability to payments data for review. But most importantly, our ePower 2.0 platform allows multi-national organizations to manage multiple processors/banks and all the data behind each of those relationships with ease.
Real-time payments in the U.S. is a welcome step in the progress of global payment innovation. We look forward to seeing how it develops.
Catch Us at Money 2020
If you want to talk to us more about real-time payments and e-Power 2.0, stop by booth 1532 at Money 2020. Our team will be on hand to discuss any questions you might have about cross-border acquiring. See you there!
Rod Katzfey is our VP of North American Sales & Business Development