Real-Time Payments (RTP): How They Work, Use Cases & Global Adoption

Say a customer orders a pair of sneakers from your website at 4 in the morning. They make the payment online, and you immediately receive the money in your account.

Doesn't matter if the transaction happened outside banking hours. It doesn't even matter what day of the week it is.

With real-time payments (RTP), you can receive money instantly. In fact, such transactions are expected to reach $575.1 billion by 2028.

So what are real-time payments? And how do they work?

We'll answer these questions and more in this handy guide.

Real-time payments are transactions where money moves from the customer's account to your business account within seconds of a sale. They are processed instantly and are available 24/7.

Unlike traditional payment systems that can take hours or even days, RTP systems clear and settle the payment the moment it is made. This means you can use the money right away.

But you need to keep a few things in mind:

• RTPs are 'push' only. This means the customer must start the transaction.
• Once the payment is sent, it cannot be reversed.
• All the steps in the process, including initiation, clearing, and settlement, are completed almost at the same time.

Real-time payment systems provide many benefits for both businesses and consumers. Businesses get 24/7 access, lower costs, and better cash flow management. Customers get better convenience, security, and flexibility.

Benefits of RTPs for businesses:

1. 24/7 access

Traditional banking systems stop outside business hours. But RTPs work around the clock. This means businesses can get paid even on weekends or holidays. It is especially helpful for e-commerce brands with customers in different time zones.

2. Lower costs

When payments are processed in real-time, businesses don't need to spend money on wire fees. In fact, they don't even have to worry about wasting time on fixing failed transactions. This translates to significant savings in the long run.

3. Better cash flow

With real-time payments, money arrives immediately. For example, a supplier can use a retailer's payment the same day to buy materials. They don't need to wait for days to get the funds cleared. In fact, you can also like RTP with your ERP/cash flow management systems to plan your working capital more effectively.

Benefits of RTPs for customers:

1. Convenience

With real-time payments, people can send money anytime, from anywhere. No more cut-off times. No waiting for the next business day.

2. Security

Real-time payments use strong security checks and encryption. This makes it difficult for scammers to intercept payments and assures customers that their information is safe.

3. Flexibility

Say a friend or a family member needs money immediately. With RTP, they can pay them immediately without waiting for transfers to go through.

Real-time payments can be used by businesses involved in different industries, including retail, payroll, and international trade.

1. Retail

Retailers can use RTPs to let customers pay directly from their bank accounts and skip the card network. This reduces the transaction costs for retailers and creates a faster and smoother checkout experience for customers.

2. Payroll

Employees no longer have to wait for the next payday. With RTP, employers can send wages and salaries on the same day they are earned. This is especially suitable for gig workers and hourly staff.

3. International trade

Cross-border payments can be slow and expensive. But real-time systems that use global standards like ISO 20022 are changing that. They let businesses settle international transactions in seconds.

Real-time payments are designed for speed. They clear and settle transactions within seconds, no matter the time or day. But traditional bank transfers still rely on banking hours and batch processing.

Here's how they compare:

Real-time payment networks send money straight from one bank account to another in seconds. They work all day, every day, and use standards like ISO 20022 to reduce errors and delays. Card networks, on the other hand, act as middlemen between a customer's bank and a business's bank. When a card is swiped, the network authorizes, processes, and settles the transaction.

Here are some differences between the two:

Real-time payment systems move money quickly and securely. Some features that make this happen include instant payments, round-the-clock availability, payment finality, transparent tracking, strong security, and rich messaging.

1. Instant payments

Once a transaction is approved, the money is transferred to your account within seconds. This instant confirmation improves trust between both parties.

2. Round-the-clock availability

RTP platforms work 24/7, including weekends and holidays. Plus, there are no cut-off times. This means payments can be made whenever they are needed.

3. Payment finality

Once an RTP transfer is confirmed, it cannot be reversed. This reduces the risk of fraud but also means users must be careful before sending money.

4. Transparent tracking

Both senders and receivers can follow the status of a payment in real time. You get notifications every time a request is sent, processed, and completed.

5. Strong security

To protect sensitive information, RTP systems use methods like encryption and tokenization. These protect the transaction data and help maintain user confidence.

6. Rich messaging

Many RTP networks use ISO 20022 standards. This allows detailed information to travel with the payment. It also supports features like 'Request for payment,' where you can send a direct payment request to customers.

Real-time payments are growing fast. But adopting and scaling them isn't always easy. You need to be prepared for challenges like integration with legacy systems, ensuring 24/7 availability, meeting regulatory requirements, and a lack of global standardization.

1. Integrating with legacy systems

Many financial institutions still use old infrastructure that cannot process payments in seconds. As such, you'll need to replace them entirely, which, frankly, can be costly and disruptive.

This means you'll have to modernize your piece by piece. For example, you can use microservices that can work alongside legacy platforms. Or you can partner with fintech providers who specialize in RTP to reduce integration hassles.

2. Ensuring 24/7 availability

RTP networks run non-stop. This means your payment system must be reliable at all times. But to ensure this reliability, you need to build strong IT setups with load balancing, backups, and redundancy.

To overcome this problem, you can partner with cloud platforms. They provide failover systems and geographic distribution, ensuring the system keeps running even during outages.

3. Meeting regulatory requirements

Payments move quickly with real-time systems. But they still need to comply with rules like AML, KYC, and data protection. And let's be real - managing these compliances manually can be time-consuming and lead to errors.

AI-driven tools can help tackle this issue. They automate transaction monitoring and make sure all the rules are followed. This makes it easier to meet these requirements accurately and on time.

4. Lack of global standardization

Different regions follow different rules and payment formats. To simplify this, ISO 20022 has been introduced as the common standard. But its rollout varies across countries. This makes it harder to scale cross-border RTP.

Real-time payments can be powerful. But to make the most of them, you need to follow some best practices. For example, identifying the right use cases, checking if they make sense for your business, having fallback options, and prioritizing security.

1. Identify the right use cases

RTP works best for payroll, loan disbursements, gig worker payouts, and merchant settlements. When you know where it works best, you can use it more effectively.

2. Check if it makes sense for your business

Look at your payment flows and customer needs. Instant transfers can boost customer satisfaction, keep them coming back, and even drive higher engagement. But weigh these benefits against the cost and complexity of implementation.

3. Have fallback options

Not every bank supports RTP yet. Therefore, it's a smart idea to build a backup path like AHC, so your customers are still covered.

4. Prioritize security

RTP transactions are final. So, you can't compromise on strong fraud detection and monitoring. Make sure you have safeguards in place before rolling out real-time payments at scale.

Expanding globally is exciting. But the complexity of managing international payments can quickly turn the excitement into stress. We're talking high fees, slow settlements, and unpredictable exchange rates. If you're using traditional methods like SWIFT, the transaction would probably pass through several banks before reaching you. In fact, it's common for businesses to wait anywhere from 3 to 10 business days before they get access to the funds.

Xflow is your single solution to all these problems. It takes the hassle out of cross-border payments and helps businesses, gig economy workers, and SMBs get paid faster. How? By connecting directly with trusted local payment networks. This cuts out unnecessary intermediaries, making it possible to settle cross-border payments within just one business day.

Plus, you get a host of other benefits, including:

• Flat 1% transaction fee with no hidden charges
• Know the exact INR amount before you withdraw
• Receive more than $10,000 on a single
• Free e-FIRA certificates within 24 hours

Want to accept real-time payments? You need to comply with regulations like AML, KYC, data privacy, and cross-border rules.

1. Anti-money laundering (AML)

The bank or payment provider you partner with must have proper AML controls in place. This lets automated tools handle sanctions checks before the transfer is approved.

2. Know Your Customer (KYC)

Strong KYC checks are non-negotiable. You need to verify customers during onboarding and monitor transactions to prevent fraud.

3. Data privacy

Real-time payments move a lot of sensitive information. Make sure your payment provider follows rules like GDPR in Europe or CCPA in the U.S. to keep customer data safe.

4. Cross-border rules

International payments can get complicated. Every country has its own rules and reporting standards, making it harder to maintain consistency.

Real-time payments are improving with better technology. Some promising future trends you can expect are interoperability, cross-border speed, digital currencies, and AI-driven security.

• Interoperability: Payment systems are being built to talk to each other. This means transfers can move smoothly across banks, digital wallets, and networks.

• Cross-border speed: Businesses and consumers expect international transfers to be just as fast as domestic ones. Networks in Europe and Asia are working toward this.

• Digital currencies: Central Bank Digital Currencies (CBDCs) are emerging as government-backed options for faster, secure transactions.

• AI-driven security: AI will enable real-time fraud checks to prevent scams.