Real-time payments (RTP) propose some major benefits over traditional banking and financial transaction options. Their speed, reliability, and overall streamlined nature make them ideal for the vast majority of digital transactions, and despite a couple of potential drawbacks, they’re definitely the future of online banking and transactions on both the domestic and international fronts.
Pros of Real-Time Payments
Here are two of the main benefits of Real-Time Payments and how they affect users.
1: Real-Time Payment Settlement Time
Traditionally, transferring money between banks can take a while. Without an RTP network in place, the banks involved have to communicate back and forth before making the funds usable to the receiver. With RTP, your funds can be accessed within 24 hours even if they’re sent from another country. In a domestic situation on the same RTP network, funds can be accessed instantly.
This is a major benefit for consumers, sellers, and even peer-to-peer transfers. When you’re sending money to anyone, for any reason, you want the money to leave your account and be accounted for as fast as possible. This prevents sellers from delaying shipping until payment is processed, instills confidence in the person you’re doing business with, and of course, ensures someone you’re helping out financially can get the funds quickly. For those receiving the funds, the benefit is obvious, they get to enjoy the funds sent to them much faster than they would with traditional methods. No one likes waiting around on money that’s owed to them.
It’s also a boon for the banks involved. There’s no need for banking systems to perform back-and-forth communications every time a transaction is performed. The streamlined system pleases the bank’s customers, and it saves them time and energy.
By speeding up the transaction process, everyone wins.
2: Better Cashflow and Efficiency
The other major benefit is that it speeds up your cash flow and efficiency. When you have to wait around on funds, other aspects of your financial life are slowed. Using a traditional banking system, you might need to wait days before moving on to the next step of your plan, because the first step is stuck due to long processing times. With RTP, money is transferred instantly, or at least within 24 hours. In the worst-case scenario, you have to wait until the next day to keep moving along with your financial endeavors.
Cons of Real-Time Payments:
While RTP is a major boon to anyone dealing with digital banking or transactions, it’s still not perfect. The streamlined approach to transferring money has produced a couple of minor problems of its own.
1: No Room for Error
RTP is extremely streamlined. This is why it has the benefits that it does. However, one of the drawbacks of having something so streamlined is that there isn’t a way to catch user errors before they cause problems.
For example, let’s say the account number you’re sending money to is just one digit off. Instead of sending money to a family member who desperately needs money as soon as possible, you might send the funds to a random account. This mistake can be disputed and corrected with time, but if you were to use a more traditional transaction method, the mistake could be caught and corrected before the money ended up in the wrong hands, preventing any need for banking disputes or waiting for corrections.
2: Concerns about Fraud
Finally, there is one drawback that poses a major risk with RTP. When two banks take days to confirm that funds are being sent and received properly, they can catch acts of fraud, or they can send a notice to you via an approved contact method to ensure you’re meaning to send or receive the funds. If not, they can prevent the act of fraud from taking place.
With an instantaneous system, or even the 24-hour international system, there’s not a lot of time to do that, and that leaves room for fraudulent transfers to slip through. Of course, you might catch those fraudulent transfers and file a police report or dispute them with the bank, but then you have to prove it wasn’t you.
There are numerous ways this can be taken advantage of, and it is definitely a risk if you don’t take a high level of responsibility for your account management. Luckily, it’s not overly common, and if you pay attention to your account, you can prevent these issues or take action immediately in the event they occur.
Real-Time Payment Participating Banks:
In the United States, there are several major banks that have adopted RTP and joined the larger RTP network. However, they’re not the only ones. Some regional banks, with dramatically smaller client bases, have also adopted the technology. We’ll only be listing the larger major banking entities, but you can ask your local bank if they have joined the RTP network, and there’s a good chance they have.
- Bank of America
- Capital One
- JP Morgan
- Citibank
- Chase
- People’s Bank
- US Bank
- TD Bank
Again, this is not a complete list, but your bank representative will know if your local bank has joined the network or not.
Future of RTP:
Over the last decade, RTP has seen a considerable uptick in growth. However, it wasn’t nearly as widespread until the period between 2020 and 2021.
When the global pandemic struck, people around the world were forced to take the majority of their transactions online, and banking became an almost solely online endeavor. That forced countries and banking entities to boost the development of RTP to handle the massive growth of digital payments and money transfers.
When that happened, the benefits of RTP over traditional banking methods became apparent. They’re faster, easier to manage, and overall, more efficient in general.
Because of that, more banking entities are adopting RTP faster than ever before, and the global market is being affected dramatically by it. Within the next few years, this once optional route of handling digital transactions is sure to be the standard, on top of that, the few minor drawbacks will likely be resolved due to the growing demand.