How real time payments are revolutionizing the payments ecosystem

The broad characteristics of RTP are universal like the near-instantaneous transfer of funds between accounts with immediate availability of the funds for the recipient, clearing and settling in a matter of seconds. These payments are confirmed in real time through a balance update, with the payer’s account reflecting the deduction of funds as soon as the payment is authorized. While settlement times can vary, many RTP systems complete the transaction within seconds, and it is irreversible.

The benefits for users are also similar across RTP systems worldwide:

1. Simplicity

To pay or receive payments, users typically click or swipe on their preferred app, which has been designed with a simple and user-friendly interface for easy mass adoption.

2. Innovation

Users typically use usernames or aliases linked to underlying verified bank account details for transactions, which unlocks innovation and adoption. For example, UPI in India owes much of its success to the underlying infrastructure of Immediate Payment Service (IMPS), and its innovative features, such as the use of UPI IDs instead of bank account numbers and IFSC codes, have made transactions effortless.

Similarly in Brazil, Pix users similarly use their Pix keys for transfers. The integration of bill payment systems, for example, Bharat Bill Payment System (BBPS) in India, has also been instrumental in creating an innovative platform for recurring bill payments. The local RTP ecosystem also means that once a user has signed up, they can easily send or receive money from anyone across the ecosystem, including cross-border transfers where bilateral or multilateral arrangements are in place.

3. Security

Advanced security is one of the key strengths of all RTP systems, with multi-factor authentication, for instance, device and biometric identifiers and one-time passwords (OTP), common across platforms. Users also need to register with the same mobile number that they have registered with the bank. Additionally, the local mandatory Know Your Customer (KYC) process further enhances the security of the platform. However, different approaches to technological and commercial designs of RTP systems are emerging, driven by national needs and local regulatory environments.

4. Architectural design standards

Most RTP platforms have adopted the ISO 20022 messaging standard, which allows for easier integration with SWIFT cross-border messages as they are based on the same standard. The Indian UPI platform and the UK NPA platforms have however chosen the ISO 8583 standard, which will make universal interoperability more difficult to achieve.

Similarly, while all RTP platforms allow users to use aliases instead of full bank details, the addressing schemes vary across a combination of verified phone numbers, email addresses or platform-specific aliases as in the case of Pix in Brazil. Pix also uses a centralized store of aliases and their mapping to verified bank accounts, while other systems (such as UPI in India and InstaPay in Egypt) federate the tokenization of bank account details to the payment service providers (PSP).

5. Commercialization

Brazil has progressed among state backed RTP systems in establishing a simple commercial model where merchants may be charged a fee by the acquiring banks for supporting Pix payments. Person-to-Person (P2P) b transfers between individuals are free on Pix, and are also likely to be free in India, where UPI has a key role in driving financial inclusion among price-sensitive blue-collar consumers. However, in other markets RTP platform operators evaluate charges for P2P transactions because in most markets merchants are acutely sensitive to interchange costs for both card-based and RTP.

6. Potential of B2B use cases

Most RTP systems globally have focused primarily on consumer-focused services, for example., splitting bills, paying for utilities and on public-transport systems, or for distributing social welfare benefits to citizens.

Many of the simpler B2B and Business-to-Person (B2P) use cases, such as providing refunds, are already live on several RTP systems. Additionally, Government-to-Person (G2P) use cases, including paying taxes and motoring fines, are also expected to go live soon.

Evolution of B2C and B2B use cases in RTP systems

The potential value of B2B use cases for corporate users is greater as they can generate added value on three key dimensions with new instant payment services:

1. Improve customer service

The ability to instantly send and receive payments allows businesses to interact with their customers in a different way. This new way of interacting with customers can improve customer service. For example, insurance or reimbursement payments can be settled in real time and thus provide an instant level of service to improve the customer experience. This also allows for just-in-time (JIT) payments, where customers can pay at the last moment with immediate confirmation.

2. Unlock operational efficiencies

Instant payments allow corporate clients in different segments to improve operational efficiencies. Immediate confirmation of payments can expedite direct supplier deliveries or reduce inventories. For example, drop shipping business models, which allow the company to send order and money to the supplier for direct and immediate delivery.

3. Redefine treasury and cash management services

With the provision for anytime settlement, there are no set cut-off time for end of day positions. Corporate customers need to redefine their internal procedures for managing cash positions and forecasting future cash flows to optimally manage financial positions overnight and on weekends and holidays. For example, corporate payments connected to treasury services that allow an intelligent integration, from the beginning of the payment, transaction status inquiry and balance inquiry. Corporates can also move suppliers to RTP, rather than the cumbersome invoice processing, where it aligns with working capital management needs.

RTP adoption impacts the end-to-end payments value chain

To successfully adopt RTP, both established financial institutions and FinTech need to re-evaluate their capabilities front-to-back across the payment value chain. Business owners will need to review their catalogue of RTP use cases for value and monetization potential, impact on internal credit and risk policies as well as on capital reserves. Regulatory compliance teams will need to update risk policies and frameworks, including the modalities and requirements for arrangement rules, real time fraud monitoring capabilities, as well as guardrails related to minimum transaction security requirements and service delivery thresholds.

Operations leaders may need to re-tool intraday processes to fully support daily operations, update exception-handling rules, as well as automated fraud detection patterns and processes for managing disputes and refunds. Technology platform owners will need to make difficult prioritization calls on limited change budgets to deliver channels and interfaces upgraded for useability and convenience, revamp online messaging patterns and data structures, strengthen information security and upgrade transaction processing systems to be able to handle two thousand transactions per second (TPS), as is common with at-scale RTP systems in India, Brazil and Singapore.