Real-Time Payments 101: Examples, Benefits, & How to Incorporate Them

If cash is still king, then Real-Time Payments (RTPs) might just end its reign.  RTP can seamlessly move money in real-time, meaning money is available instantly. In today’s fast-paced digital climate, consumers demand streamlined financial services that reduce friction and processing time. Merchants should aim to keep up with the changing payments landscape as new trends continue to speed things along with no sign of slowing down.

So, what exactly are RTPs? In this post, we’ll cover what they are, how they work, and why they’re fundamental to cash flow management and financial services.

What Are Real-Time Payments?

Real-Time Payments are initiated and settled almost immediately. By combining the capabilities of this payment service and Open Banking, FinTechs and merchants can offer their customers fast, convenient, seamless, and secure payment experiences. lets customers and businesses can transact directly from their accounts 24/7 without the need for traditional payment methods like cards or checks. As a result, the receiving party has instant access to the funds sent to their account. 

Traditional Automated Clearing House (ACH) payment methods do not clear instantly. Plus, most transactions are approved in designated “batches” throughout the day. This method makes retrieving and receiving money much slower, less secure, and less efficient. 

Some might confuse “real-time payments” with “faster payments,” but they don’t mean the same thing and shouldn’t be used interchangeably. RTPs are a form of faster payments, but faster payments aren’t always completed in real-time. For example, a Visa charge’s transaction messages can be sent in just a few seconds, but those transactions aren’t instantaneously processed.

Another thing to note is that RTPs are strictly credit-only push payments, where the payer instructs their bank to “push” the money to the payee’s account. In contrast, debit payments enable billers to automatically take funds from the payer’s accounts (e.g., scheduled credit card payments). They’re not allowed in the RTP network due to high fraud risks.

However, payees can initiate a Request for Payment (RfP), a system where a service sends an online or mobile message to the payer to request a payment. Once the requested funds are approved, they are then pushed to the receiving party’s account. As RfP continues to mature and develop, accepting Real-Time Payments will become more ubiquitous.

Another factor driving the shift to RTPs is lower fees. For example, a single payment is charged 0.045 cents when it goes through the RTP network of the banking association The Clearing House (TCH). In contrast, credit card processing fees can be 1.5% to 3.5% of the transaction value. 

Because of its convenience and affordability, RTPs are becoming the payment of choice. According to TCH, the RTP network reached the milestone of over 1 million payments on a single day on September 1, 2023.

How Do RTPs Work?

Real-Time Payments are conducted over the TCH’s RTP network, a system derived from the ACH, which pioneered the first core payments infrastructure in the U.S. This network makes the RTP’s “open loop” ecosystem possible, where payments are connected directly to different bank accounts without the need for anyone to maintain a specific account on any financial institution.

As long as an institution is enrolled in the network, it can directly settle payments with other members. To facilitate this, customers download an API or app that enables bank transfers globally. 

When the payer initiates payment through the API, the transaction is authorized by the payer’s bank. A message is then sent to the RTP network, which then validates, clears, and transmits the funds to the payee’s bank. Finally, a notification is sent to the payer that the transaction was cleared.

Although this process seems simple, it’s highly regulated due to TCH’s crucial role in the U.S. banking system. The network is monitored by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC).

4 Examples of RTPs

There are four common examples of use cases for RTP:

1. Gaming/sports betting: Operators can use Real-Time Payments for instant payouts, usually through debit/credit card or digital wallet integration. This feature increases gamer loyalty as they can easily access their winnings whenever they want. 
2. Gig work: For freelancers and gig workers, getting paid through RTPs is crucial as they want immediate access to their funds for better cash flow and to get a clearer picture of their monthly or even weekly finances.
3. Small businesses and online retailers: Sending refunds or cashbacks/rebates to customers is easier than ever with RTPs. This feature enhances customer satisfaction and is integral to having a loyalty/rewards program that works.
4. Insurance: Insurance companies use RTPs to quickly reimburse claims as soon as they’re approved. This is especially important in case of emergencies, such as natural disasters or injuries. 

RTP vs. ACH: What’s the Difference?

ACH is used to process electronic deposits and automate online digital payments. Whenever you receive a check in your account via direct deposit or clear the funds for a paper check someone sent you in the mail, you’re using ACH. 

ACH payments are electronic transfers that move money from one bank to another using the ACH network, which helped carve the path for RTPs. In this sense, RTP is a new infrastructure with the essential functions of ACH but built for the digital age.

The main difference is that RTP network payments settle with immediate clearance, while ACH payments normally take hours or days. While ACH payments laid the groundwork, RTPs are setting the stage for the future of electronic payments.

Why Are Real-Time Payments Valuable?

There are many advantages of RTP services that continue to benefit businesses and consumers alike. Here are some of the more notable benefits of real-time payments.

• Security & efficiency. RTPs are far more effective and safeguarded than credit cards and/or ACH payments. It is faster and more convenient for consumers and it doesn’t require them to provide any confidential payment or account information to a third party. Real-time payment credit transfers are just as fast as cash, but easier to manage without sacrificing security.
• Range of applicability. Because RTPs happen instantly, people are able to do more things with their money more frequently. For example, trading stocks immediately or monitoring sports betting is much more competitive and streamlined since it’s simple to quickly move and/or place cash in multiple places in a matter of seconds.
• Better communication and collaboration. RTP removes a lot of friction within the traditional payment space; it allows consumers to close gaps between all involved parties, such as customers and merchants or banks and other financial institutions.
• Innovative features. The leading technology, while still developing, creates space for fintechs to develop and launch more innovative products for their consumers. They can leverage unique new features such as quick speed, messaging capabilities, and the added security to offer to their customer base—further enhancing the overall payment experience.

4 Benefits of Real-Time Payments

Here are some of the more notable advantages of RTPs:

• Security & efficiency: RTP  is far more effective and safeguarded than credit cards and/or ACH payments. They are faster and more convenient for consumers and don’t require them to provide confidential payment or account information to a third party. RTP credit transfers are just as fast as cash but easier to manage without sacrificing security.
• Range of applicability: Because RTPs happen instantly, people can do more things with their money more frequently. For example, trading stocks or monitoring sports betting is much more competitive and streamlined since it’s simple to quickly move and/or place cash in multiple locations in seconds.
• Better communication and collaboration: RTP removes a lot of friction within the traditional payment space. It allows consumers to close gaps between all involved parties, such as customers, merchants, and other financial institutions.
• Innovative features: This technology, while still developing, creates space for FinTechs to develop and launch more innovative products. They can leverage unique new features, such as quick speed, messaging capabilities, and added security, to further enhance the overall customer experience.

What Is the Future of Real-Time Payments?

‍Real-Time Payment systems are only growing in relevance and popularity. In July 2023, the Federal Reserve launched FedNow, a new RTP network separate from the one run by TCH.FedNow exists primarily as an alternative to introduce healthy competition in the instant payment space. When it launched, the system was made available to 35 early adopter banks, but the Federal Reserve is targeting 9,000 banks and credit unions over time.Some of the key differences between FedNow and the RTP network include: 

• FedNow has a much lower transaction limit, capped at $500,000, whereas RTPs are at $1 million.
• In terms of cross-border payments, the current RTP system can process foreign transactions, while FedNow is starting out as a purely domestic network.

With 80% of merchants, retail banks, and billing organizations backing real-time payments and Open Banking, FedNow is just the beginning of new competitors and more opportunities.Real-time payments in the U.S. are poised to increase to 3.8% by 2027 from just 1% of total transactions in 2022 (a 32.6% compound annual growth rate), according to Statista.

‍Real-Time Payment Banking With Trustly

‍Real-time payments are reshaping how people conduct business and participate in e-commerce. As more customers and financial institutions adopt this technology, businesses must adapt quickly. Trustly has already connected 8,000+ merchants to over 6,000 banks, helping them get ahead of the game.  Trustly Payment’s Open Banking solutions are changing money management by leveraging real-time infrastructure for quick, frictionless, and seamless payouts that create better experiences for your consumers. Learn more about all these benefits and other RTP perks by scheduling a meeting with an expert.