How startups can cash in on Instant Payments
Real Time payments make especially great impact during challenging or uncertain times, especially when businesses and employees closely monitor the ins and outs of funds. Instant payments can offer control and speed when these factors are most required.
There are various use cases for Real Time Payments (RTP), ranging from a business being able to offer an hourly worker immediate access to their earnings, or the need to pay vendors in another time zone, or perhaps a quick reimbursement to a customer with a negative experience is required.
RTP is essentially the first new payment rail in over 40 years. The transactions are cleared and settled in real time, taking about 3-15 seconds irrespective of the time or day of the week.
Businesses and individuals can schedule payments down to the second. They can know also when funds were received instantly.
Why RTP matters
Real time payments should be seen as an upgraded yet complementary payment system to wires and ACH.
RTP can be used for Business to Customer payments; where businesses can immediately refund customers enabling them to validate their receipt during the entire conversation.
It can also be used in Business to Business payments where businesses can pay their suppliers quicker, thereby improving relationships as well as reducing the time spent on payment processing and tracking.
Real time payments can also be used by businesses for employee payments. Their parttime, contract or gig workers can be immediately paid once their work or shift is completed. This is an in demand option for those willing to pay a service charge for it.
In terms of personal individuals, real time payments can be used for insurance claims to provide those suffering from one loss or another. It can also be used for account to account payments to enable fund transfers between a customer’s account held at various entities.
It goes without saying that there is an ever increasing demand for real time payroll, to the point where it may become the standard expectation, particularly amongst hourly and gig workers. Businesses that adopt RTP now are going to be ahead of the curve.
How can businesses benefit from RTP?
Businesses particularly start-ups in Fintech, gig economy, ecommerce, and payment processing spaces are likely to benefit from RTP. For businesses focused on customer satisfaction, RTP can be a gamechanger. A few businesses already leveraging RTP are Venmo, PayPal, Modern Treasury and Digit.
RTP is a beacon to start-ups looking to create value or disrupt their operating space, be it providing customers with instant access to their money or giving the business itself a competitive edge.
Digit’s implementation of RTP, for instance, is an example of how businesses can leverage this new payment process. With RTP, Digit was able to utilise customer authorisation and routing number already collated from their customers, instead of having to ask for more data. Digit also utilised and RTP to ensure the process was a lot smoother.
Another benefit of RTP is the fact that it has an irreversible capability. What this mean sis that once transactions are sent, they are final. With 24/7 transactions, businesses have no room to experience system glitches or errors.
Things to know before switching to RTP
Since payments are made in real time, that means fraud checks also have to be completed in real time- considering the funds cannot be retrieved once they are sent. However, just as with other fraud risks, RTP does have inbuilt precautions, such as integrating Early Warning Services as part of the payment process. Early Warning Services provide account validation of a recipient’s bank account information.
It is important to note RTP adoption is relatively new and for that reason the network at the moment only covers about 60% of households in the US- however, this number is expected to grow.
At this moment, only 11 banks can initiate RTP, while 21 can process receipt.
RTP’s cross-border application has not been leveraged yet.
Transaction limit for RTP payments now stands at $100,000.
Steps to implementing RTP for B2B processes
Evaluate your eligibility
Simply leveraging RTP for the sake of it is bad business. You first have to evaluate if the process makes sense for your business. You can consider how RTP will fit in your business’s model. Is it something your customers are demanding? Can it provide your business a competitive edge?
You also have to consider the impact of cost per transaction compared to prospectively creating a new revenue stream. If your business sees RTP’s added value and can anticipate sufficient volume to underline the technical effort, then RTP might be for you.
Get the right payment partner
The next step is to identify a fintech company to help you strategically grow your business. Additionally, for a fintech to send real time payments, they need to have vested interest in converting their downstream systems from batch to real-time processing, which is an integral step to support the scaling of RTP.
Understand tech integration
Compared to bath processing, there are a number of processes on the backend to ensure that instantaneous payment deliveries are successful. APIs or application program interfaces are an important integration method to send and receive payment instructions in real time, whilst enabling RTP across systems.
You need to evaluate your business’s ability and familiarity with APIs. It might be necessary to outsource this process to an outside vendor which has time and cost implications. The more familiar your business is with this technology, the quicker your onboarding can be.
Understand what operating in real-time is
Switching to RTP means you need to understand how to operate in a real-time environment. A real time environment can significantly impact your control and accounting functions. How are you able to handle real time failures? Mistakes? How will you record outgoing flows in real-time to your sub-ledger? Aligning RTP workflow to complement existing batch processes, such as ACH, will likely take some re-engineering of existing approaches.
