5 reasons real-time payments are going mainstream

Today’s economy moves fast. Everything is immediate, and payments are getting there, too, as businesses adopt real-time payments, the first new payment system in the U.S. in 40 years.

Real-time payments (RTP) have been adopted by nearly 40 percent of large enterprises in the nation, and that penetration is on track to grow. Fully two-thirds of U.S. companies say they’re likely to adopt RTP in the next two years, according to a recent report from Levvel Research.

Each year, more than $18.5 trillion in B2B payments are sent in the U.S., half of them via paper check. In a market ripe for innovation and automation, RTP is gaining momentum in the U.S., as it has previously done in other countries.

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Five key factors are driving RTP pick-up:

    • Demand for immediacy: RTP is all about expediency, as payments occur instantly. Companies cited immediate access to funds as the most appealing benefit of RTP, Levvel found in its 2021 report. RTP is also available 24/7/365, which provides much more flexibility than traditional banking hours that constrain non-RTP payments. Immediate access to funds enables companies, especially smaller ones that might be on tighter budgets, more capability in meeting their obligations. On the consumer front, RTP will also enable people to have faster access to funds, which is especially critical for lower-income workers.
    • Better data = better insights: Perhaps the biggest benefit of using RTP for B2B payments is that it enables companies to instantly see more information about payments. With non-RTP transactions, vendors may at best see their clients’ payment post to their bank account. RTP enables data to transfer with the payment, so RTP transactions grant visibility into invoices, dates, purchase orders and more. This gives companies an advantage in responding to customer needs, and has potential to improve their finance function and decision-making.
    • Competitive advantage: More than three-quarters of companies believe RTP will provide them with a competitive advantage, the Levvel research shows. The foundation for this advantage is improved user experience. As more banks and companies embrace the potential and start operating via RTP, the result will be others adopting it as well in order to stay competitive. A survey by Citizens Commercial Banking found that a bank’s ability to provide RTP was the second-most important determining factor in choosing a banking partner, with only a bank’s ability to provide solutions throughout their business lifecycle outranking it.
    • Mitigated risk of payment failure: RTP payments are irrevocable and payment instructions are not sent unless there are sufficient funds, reducing the risk for payment exceptions.
    • Increased accounting efficiencies: RTP can reduce a company’s operational requirements of foundational back-office processes, including accounts receivable (AR) and accounts payable (AP), and this can potentially lead to lower costs. Such savings can result in increased incremental value for their customers. Overall, RTP payments can help product teams build more efficient payment flows, and help finance teams manage payment operations more effectively.

In addition to RTP, the Federal Reserve is forging ahead with its real time payment system, FedNow, which is expected in 2023 or 2024. Having another player in the market will also help build awareness in tandem with the RTP offering for the value of real-time payments. Education is still needed in all industries as to what RTP is and how it can benefit companies.

The need for innovation in B2B payments has long existed. B2B accounts for 76 percent of all money flow in the U.S., and most of that is done via wire, check or ACH: technologies that haven’t had major updates for decades. Traditional payments are slow, cumbersome to process and don’t enable real time views into cash. RTP represents a big step to speeding up and modernizing money movement, accounting and payment operations.

Matt Marcus is co-founder and chief product officer at Modern Treasury.