Speed. We’ve all felt the heady rush that comes with an overnight package delivery or an upgraded internet connection. Being faster is a competitive advantage for technology-infused companies. A faster payment experience can distinguish a company from others a prospective customer might be considering. Beyond customer impact, speed in payments offers a strategic value on every level to a company. Speedy payments equal better cash flow and a better understanding of the composite health of the business. Fast financial communication leads to better data and business decisions.
With speed in mind, real-time payments (RTP) have the potential to impact a number of industries. A real-time payment is exactly what it sounds like: a bank-to-bank payment that settles instantly. RTP is based on a good funds model with transactions that are intended to be final. Care should be given when choosing RTP as a method of payment since the transaction is considered final and settled on payment, much like a cash transaction.
Nearly every industry can benefit from real-time payments. The ability to send money quickly and instantly to customers or vendors provides businesses with another opportunity to increase operational efficiencies, drive customer loyalty and grow the bottom line.
From healthcare to property management and real estate, faster payments offer businesses a way to stand out. Instant payments offer businesses the opportunity to improve operational efficiencies. Further, they can drive value through offering more convenient payments and flexible timing, depending on the needs of customers. Innovators in the gig economy can derive value from instant bank-to-bank transfers and coupled with the Dwolla Dashboard, can identify solutions to help businesses and individuals better manage their cash flow.
Similarly, the insurance industry benefits from the immediacy of real-time payments as it improves the customers’ experience and better internal cash management. The ability to send money quickly and directly to customers who have experienced an accident or natural disaster can make a difficult time less stressful. These individuals won’t need to wait for a check to arrive in the mail or worry about whether they can cash it when it does arrive.
Communicating in Real-Time
Consider the different ways a person or business might communicate with another individual. They could send a letter, email or instant message. The same message will be sent but some methods are faster than others, which matters a great deal depending on the purpose of the message.
Message delivered by a friend > Letter sent via postal service > Email > Instant message
The same is true with payments. There are multiple payment modalities for a business to choose from and each has benefits or drawbacks depending on the payment’s purpose. Automated Clearing House (ACH) payments are the bread and butter of transferring funds between bank accounts, because they are predictable and reliable, if not particularly speedy. Real-time payments are an entirely new set of payment rails that offer the speed of a credit card payment with the assurance of good funds from a bank account. There’s no waiting or wondering when funds will clear.
Seeing bank balances change in real-time is a refreshing thing—like taking the first sip of a sweet, fizzy soda on a warm day. And as more businesses continue to understand the opportunity real-time payments can provide to them, the demand for RTP increases.
Instant Confirmation Means Immediate Availability
Imagine a cashless society, where carrying paper money is passé.
For consumers, card transactions have become increasingly common for daily purchases. It is here where the convenience of RTP is immediately evident. No need to track credit card balances or check to see if a transaction has changed from pending to processed. Having the ability to authorize a request for payment and approve a transaction on-the-go allows for greater consumer money management control.
RTP introduces the possibility for the end of paper payments as we know them.
Any sufficiently advanced technology is indistinguishable from magic.
With the right technology, a digital transformation process can leapfrog a business to the pole position in their industry. The benefits also apply to internal business processes. RTP offers accounting teams the ability to reconcile accounts minutes after transactions happen, unlocking new efficiencies.
That type of communication is a core component of the RTP transaction process. Real-time payments allow businesses to work smarter by allowing the ability to add contextual information. This optional integrated communication facilitates shared understanding for the transfer and application of funds and distinguishes RTP from other payment modalities.
Picture being able to send a payment with a note that states exactly what the payment is for, effectively eliminating the back-and-forth between sending and receiving parties.
Enhancing the Customer Experience
Current eligibility for RTP depends on both the sender’s bank and the receiver’s bank, as well as any intermediate points where funds may be moved along the way.
RTP-enabled banks typically fall into one of three categories:
- They can receive funds.
- They can send funds.
- They can send, receive and issue requests for payment.
Requests for payment must be approved by the end recipient before the funds can be sent. When banks connect to the RTP network, they typically begin by enabling the ability to receive funds (the most basic type of connection) and build subsequent connections to send funds and issue requests for payment.
As of September 2020, The Clearing House (which manages the RTP network) estimates that over 55% of all U.S. deposit accounts have access to the RTP network. And there’s huge growth potential — this number will only continue to grow in 2021.
The shift to digital payments has been accelerated by the pandemic, and this impact is likely to be felt long-term. Real-time payments offer an upside in the elimination of paper processes and highly competitive pricing in comparison to the card networks. Plus, RTP inherently supports the continued desire by both businesses and consumers for safe, contactless payments.
Ultimately, RTP offers a blazing-fast way to transfer funds between two bank accounts. Given a company’s business model, a real-time payment option might exist alongside other payment modalities or be presented as an optional upgrade for end users. RTP is the modern payments experience that offers convenience for both consumers and businesses. Consumers expect a faster payment experience, and businesses want more control of cash flow.
RTP offers ample opportunity for innovation for parties on both sides of the transaction.
Are you interested in exploring the possibility of real-time payments for your company?
Dwolla is currently conducting exploratory research with businesses looking to offer real-time payments.
Reach out if your business is interested in discussing the possibility of real-time payments.