How do instant payments work?

Real-time payments, also known as "instant payments" or "immediate payments," are a new type of payment system that allows for the near-instant transfer of funds between banks and other financial institutions. This technology is changing the way that people and businesses make and receive payments, offering faster, more convenient, and more secure options for moving money.

Traditionally, most payments have been processed through batch systems, which means that they are grouped together and processed at regular intervals, such as once per day or once per hour. This can cause delays of several hours or even days, depending on the payment type and the financial institutions involved. Real-time payment systems, on the other hand, allow for the transfer of funds to be completed within seconds or minutes.

There are several key benefits to real-time payments. For consumers, the most obvious benefit is the speed at which payments can be made and received. This can be especially useful for emergency situations, such as when a family member needs money quickly, or when a bill needs to be paid immediately to avoid late fees.

For businesses, real-time payments can improve cash flow and reduce the risk of late or missed payments. In addition, real-time payments can help to reduce fraud, since funds are transferred immediately and cannot be reversed after they have been received.

Real-time payment systems are currently being implemented in many countries around the world. In the United States, the Federal Reserve is working on a real-time payment and settlement service called the FedNow Service, which is expected to be available in 2023 or 2024.

In Europe, the SEPA Instant Credit Transfer scheme allows for real-time payments within the European Union and the European Economic Area. And in the United Kingdom, the Faster Payments Service allows for real-time payments between banks and other financial institutions.

Overall, real-time payments are a major development in the world of finance, offering faster, more convenient, and more secure options for moving money. As more and more countries and financial institutions adopt this technology, it is likely to become the new standard for payments.