Real-Time Payments and How to Implement

Since their introduction to the U.S. financial landscape in 2017, Real-Time Payments, or RTP^®, have seen slow but steady adoption by companies across both B2B and B2C sectors. Then came 2020 and the COVID-19 pandemic: supply chains buckled, social distancing became the rule. And consumers—suddenly wary of handling currency—wanted more options for touchless and high-speed transactions.

Now, for many companies, adopting Real-Time Payments has gone from "interesting" to "indispensable." Doing so requires an understanding of the benefits of such a system, as well as the successful strategies for implementation.

A Definition of Speed, Security and Efficiency

Real-Time Payments deliver immediate transfer of funds from the payor to the payee. This makes transactions complete in only seconds—not the minutes or even days that have been the standard in the recent past—and not just during business hours Monday through Friday. Instead, RTP delivers immediate funds 24/7/365.

Beyond speed, RTP provides unrestricted access by the payee to the full amount of the transaction and excludes reserves, holds or any limitations placed on how the funds can be used. And, once completed, transfers cannot be revoked, called back or canceled by the payor.

Jennifer Lucas, executive director of financial services advisory for the payments practice at Ernst & Young, notes in an interview with CFO magazine, "The beauty of RTP is that the amount paid, what it was for, who paid it, and confirmation of payment are all transmitted without any manual processing."

As a result, the advantages range from freeing up working capital sooner for strategic investment to accelerating supply-chain operations.

Global Impact of Adopting Real-Time Payments

While the adoption of RTP is relatively new in the U.S., companies across the globe have been leveraging these benefits for decades—beginning as early as 1973 in Japan, for example. But the real multinational ignition point came just after 2000 with high-speed data and the ubiquitous cell phone. Today, enterprises in 54 countries offer RTP to suppliers, customers and consumers.

Research firm Markets and Markets projects that demand from customers and merchants will drive the compound annual growth rate of Real-Time Payments transactions to $25.9 billion worldwide by 2023. Here in the U.S., a 2020 survey reported in ABA Banking Journal says that 81% of business leaders "expect (RTP) to ‘dramatically transform the way business is done.’"

But even those aggressive projections shifted as the pandemic significantly affected the payment preferences of the B2B sectors. Looking at the effect of supply chains that were paralyzed across the globe, a Deloitte whitepaper, Real-Time Payments and implications of the COVID-19 pandemic, projects that, "Businesses want greater assurances that their supply chains are secure, resilient, virus-free, and safe," creating an opportunity, "where suppliers (are) paid in real time, and goods tracked end-to-end in the supply chain."

COVID's Effect on Cash and Paper Payments

In a global overview, Accelerating Winds of Change in Global Payments, consulting firm McKinsey forecasts, "The impact of the COVID-19 crisis will likely lead to a further decline of cash usage." In the U.S., their predictions showed a decline of cash used in purchases from 51% to 28% by the end of 2020. This is in spite of the run on ATMs that characterized the early days of the pandemic.

The Institute of Finance and Management finds that the percentage of accounts payable departments that make at least half of their payments to suppliers using a paper check has declined by seven percentage points (from 41% to 34%) since the pandemic took hold. And while many had previously projected the demise of paper checks, the trend accelerated as offices emptied.

"All of that paper was being disbursed or just left in an office that was not occupied, so [those orders] pushed the paper envelope on paper-based distribution. It just halted," Bridgit Chayt, Fifth Third Bank senior vice president and director of commercial payments and treasury management told online journal DISBURSEMENTS Tracker. "Businesses therefore made the jump to digital treasury solutions out of necessity… a transition that is likely to become more of a necessity as the pandemic drags on and keeps workforces remote,” she added.

The Consumer as Trend Driver

In the months and years before the coronavirus crippled the global economy, consumers were already forming habits and preferences that are clearly shaping their embrace of companies offering them real-time payments. With cell phones or laptops in hand, they are now paying for everything from coffee to cars.

But COVID also delivered surprises in some unexpected sectors. As the Wall Street Journal reports, the pandemic caused a wave of renters to pack up and move to apartments offering more work-at-home space, or even make the transition to a suburban single-family home. With an understanding of consumer preferences and their pandemic-driven need for access to funds, a Chicago apartment building owner simplified the process for tenants moving out. He offered instantly refunded security deposits and remaining rents via RTP. His tenants responded with great reviews of their landlord on a B2C marketer’s most sought-after and powerful referral source—social media.

According to qualitative and quantitative research on payment preferences conducted by the Federal Reserve, positive responses to real-time payments from both businesses and consumers can be expected. Among the key takeaways from their report: Faster is preferred when evaluating payment features for both consumers and businesses—faster payments to consumers enabling businesses to create a differentiated customer experience.

Getting Started with Real-Time Payments

There are many things for companies to consider as they begin to implement RTP. First is the transaction size common to your business. At its introduction, The Clearing House, operator of the RTP network, had set the transaction limit at $25,000. As of February 1, 2020, when the first pandemic waves hit the nation, that limit was raised to $100,000.

Next, ensure that your Accounts Payable and IT teams have a strong and integrated working relationship. This will be key to implementing application program interfaces necessary to enable RTP across systems.

Perhaps equally important, gauge your suppliers’ and customers’ appetite for RTP, as well as which of your competitors are already offering its advantages. This is where your marketing and sales departments will have a role in leveraging RTP as a competitive advantage.

And finally, at the heart of successful implementation of RTP is leveraging the right experts to guide you; pivotal to making the most of RTP for your business will be your bank, your banker and their organization’s RTP experts. In the case of Fifth Third Bank, that means a team recognized for innovation in a national competition for B2B applications of RTP. Contact your Treasury Management Officer, Relationship Manager or Find a Banker, to learn more.