The challenges and opportunities in real-time payments

New developments in technology have made real-time payments possible and the trend is growing worldwide.

An increasing number of real-time systems is being deployed across the world.

According to the FIS fifth annual Flavors of Fast report, there are now 40 active real-time payment programs worldwide, up from 25 in 2017, and nearly three times as many as the first report in 2014.

What are real time payments?

Real-time payments – also known as real-time payments, instant payments or immediate payments– are defined by the Euro Retail Payments Board (ERPB) as electronic retail payment solutions that are available 24/7/365. 

They result in the real-time, immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation).

What is driving real-time payments?

The rapid adoption of real-time payments is consumer driven: young consumers who live in an always-on world with their mobile phones constantly at the ready. They have neither the time nor the patience to wait for a transaction to be approved. Things must happen instantly.

This need for faster payments now includes merchants, suppliers, customers, workers and the rest of us who all want a quicker way to do business. As consumers have become accustomed to instant payments the trend is a growing insistence on greater transparency, certainty, and immediacy of transactions.

It all started with the mobile phone that made mobile payments possible. Mobile phone users have become accustomed to making payments at any time, day or night, no matter where they are.

Real-payments means anyone can make and receive payments any time of day and any day of the week.

Needless to say, the new trend has had a dramatic impact on traditional financial institutions and the services they offer.  A paradigm shift away from cumbersome batch processes to real-time offering is necessary and happening.

Real-time payments (RTP) worldwide

The surge in the deployment of real-time payment systems worldwide speaks to growing consumer demand.

Countries are developing their own real-time payment systems. Just in in this year, within a couple of months, three big schemes went live: Real Time 1 (EBA RT1) for the processing of SEPA Credit Transfer Instant in Europe, The Clearing House (TCH) Real Time Payments in the US, and the Australian New Payments Platform (NPP).

These schemes will enable real-time payment transfers across 34 European countries, the US and Australia.

On top of the existing live schemes in the UK, China and India, over half of the global population can now access real-time payments solutions.

India’s Immediate Payment Service (IMPS), Singapore’s and Secure Transfers (FAST) service, China’s IBPS service, Express Elixir in Poland, Straksclearingen in Denmark, Swish in Sweden and Zengin in Japan are other real-time systems in operation.

In fact, Japan was the first country in the world to implement real-time payments and that was way back in 1973.

Features of real-time payments

Real-time payment systems are characterized by the following features:

• Immediacy: Settlements are lightning-fast.
• Finality: Once payment has been initiated, it can’t be canceled; it’s final and irrevocable.
• Certainty of payment: Real-time messaging instantly notifies the payer that the money arrived and the payee is also notified instantly that the money is there.

Real-time payments benefits

Real-time payment shortens transaction time dramatically, leading to overall efficiency and improved client experience.

The collapse of transaction time also diminishes the time in which any fraud can take place.

Real-time payments reduce the average end-to-end costs of payment transactions.

Financial institutions see real-time payments as a driver of revenue growth for their organizations.

Real-time payments offer an opportunity for financial institutions to innovate and develop new services for customers thereby finding a new competitive advantage.

Challenges of real-time payments

Implementing real-time payments is not straightforward.

The legacy infrastructure on which most existing financial services companies are built to handle batch processing, not real-time processing; they are not designed for real-time transactions or clearing.

Implementing an infrastructure that facilitates real-time payments would be challenging to say the least, especially if an institution wants to integrate it with existing infrastructure.

On top of all that, real-time payments does not have a proven business case yet – no one can figure out how to make money out of something that happens instantly. It looks like financial institutions won’t charge individual customers for the service, but will charge corporations and businesses.

At this point it’s difficult to see how real-time payments will become a global, cross-border phenomenon soon since not every country has a regulatory body that mandates the adoption of real-time payments and while different regions are developing different schemes.

Overcome RTP challenges with the right platform

One of the key technologies powering new payment solutions is In-memory computing. This solution helps companies to process and analyze large amounts of data in real time.

GigaSpaces, a software company from Israel, has developed a platform with in-memory computing capabilities that facilitates instant payments while also meeting regulatory requirements on a global scale.

In-memory computing is the storage of information in the main random access memory (RAM) of dedicated servers rather than in complicated relational databases operating on comparatively slow disk drives.

One benefit of running software on in-memory databases is the ability to perform real-time analytics on transactions, which of course is ideal for instant payments.

The move to real-time payments is not without challenges. For companies to succeed in providing this service, payment transactions must be processed instantly and reliably.

Payments services providers have to comply with customer command for instant payments while at the same time scaling their business. They have to implement advanced analytics to combat fraud while ensuring that they comply with regulations.

All of these challenges can be met with in-memory computing.