Real-time payments (RTPs) are payments that are processed instantly and continuously at any hour. RTPs are transforming financial transactions for businesses across the globe. This payment method, which allows for the immediate transfer of funds at all hours, is redefining conventional banking norms. For businesses, the acceleration of transfers presents an opportunity to optimise cash flow management, simplify administrative processes, and create a better customer experience.

According to a report by ACI Worldwide and Global Data, real-time payment transactions are projected to surge by 63% annually to reach a total of $511 billion per year by 2027. From the speed of ecommerce transactions to the real-time payout of gig economy workers, instant transactions have the potential to alter many aspects of commerce.

Below, we'll discuss the fundamental workings of real-time payments and their benefits and challenges, as well as how businesses can make the most of this technological leap in payment systems.

What's in this article?

• What are real-time payments?
  
• How do real-time payments work?
  
• Real-time payment networks
  
• Benefits of real-time payments
  
• Risks and challenges of real-time payments
  
• Real-time payments vs. ACH payments
  
• How Stripe Payments can help
  

What are real-time payments?

Real-time payments are instant payments that are processed immediately and continuously. Unlike traditional payment systems, which can take hours or even days to complete transactions, RTP systems immediately transfer funds from one bank account to another. This can occur within seconds of the initiation of the transaction, and the funds are immediately available to the recipient.

How RTP security works

Real-time payments are built on the same infrastructure banks use for traditional transfers. Many systems use multifactor authentication to verify the sender's identity before a transaction is approved. On the bank side, institutions apply their own controls—transaction limits, device recognition, and behavioural checks—to flag unusual activity.

The main limitation is that the speed works against fraud recovery. Because funds settle instantly and irrevocably, there's no window to reverse a transaction once it's sent. Fraud monitoring systems screen transactions in real time, but if a fraudulent payment clears, getting the money back typically depends on the recipient's cooperation rather than a technical reversal.

How do real-time payments work?

RTP systems facilitate the immediate transfer of funds between parties. For businesses operating across different commerce channels, this represents a significant change from traditional ways of managing transactions, reducing delays and providing cash-flow efficiency. Here’s a quick explanation of how RTPs work:

• The payer initiates the payment: The RTP process begins when the payer sends money to the payee through online-banking platforms, in person at a physical bank, or via a mobile banking app. (RTPs are the infrastructure that banking apps such as Zelle are layered on top of.) The payer can set up the transfer through a more traditional method, like entering an account number, or through a more modern method, such as scanning a QR code.

• The payer’s bank authenticates and authorises the payment: After the payer initiates the payment, the next step is authentication and authorisation. The payer’s bank authenticates the payer’s identity, usually through security measures such as passwords, biometric data, or two-factor authentication. The bank then verifies whether the payer has sufficient funds for the transaction. If everything is approved, the bank authorises the transaction.

• The bank begins processing the transaction: Once the bank authorises the transaction, the bank sends the payment instruction through the RTP system, which is usually a central network operated by a financial authority or a group of banks. Unlike traditional payment systems, RTPs do not use batching. Instead, RTPs process transactions individually and continuously, allowing the system to handle payments in real time.

• The payer and payee are notified about the transaction: After the payment is processed, both the payer and the payee receive immediate notifications about the transaction. This notification could be an SMS, an email, or a push notification from a banking app, depending on how the payment was initiated. This instant-notification feature of RTPs gives businesses more certainty around their financial transactions and therefore their finances.

• Settlement occurs instantaneously: The last step in the RTP process is settlement. Unlike traditional payment systems, in which settlement happens at the end of the day or even later, with RTPs, the settlement takes place almost instantaneously. The payer’s bank transfers the funds to the payee’s bank, and the money is immediately available for use in the payee’s account.

Real-time payment networks

Numerous countries across the world have implemented real-time payment systems. Each system may have unique characteristics depending on a country’s regulations, banking infrastructure, and specific needs of the local economy, but they all share one common trait: they enable the instant transfer of funds. Here are a few examples:

• Faster Payment System (UK): Launched in 2008, the UK’s Faster Payment System (FPS) is often cited as one of the first major real-time payment systems. FPS enables almost instantaneous payments between accounts at different British banking institutions.

• Immediate Payment Service (India): Launched by the National Payments Corporation of India, Immediate Payment Service (IMPS) offers an instant, interbank electronic-fund-transfer service that works at all hours. Customers can access IMPS through different channels, such as mobile phones, ATMs, SMS, and web browsers.

• The Clearing House (US): The Real-Time Payments network, which is operated by The Clearing House (TCH), is the first new core payments infrastructure in the US in more than 40 years. The RTP network’s operator, TCH, is a private entity owned by a consortium of large US banks. The network is bank-facing infrastructure—consumers don't connect to it directly. Financial institutions participate in the network and pass the capability on to their customers, who send and receive payments through their bank's apps or services. The main difference between the network and its main alternative, FedNow, is access: banks outside The Clearing House consortium can't offer RTP, but any financial institution can offer FedNow by integrating it. The RTP network provides instantaneous settlement and availability, and it operates all day, every day.

• FedNow Service (US): The Federal Reserve launched a real-time solution called the FedNow Service in July 2023. Like the RTP network, FedNow is bank-facing infrastructure. Unlike the RTP network, it's open to any eligible financial institution—no private consortium required—making it more accessible to community banks and credit unions. Common uses include account-to-account transfers, bill pay, payroll, and insurance payouts.

• Pix (Brazil): Launched in 2020 by Banco Centro do Brasil, Pix enables users to make instant payments 24 hours of every day of the year. The system is accessible to all customers who have a bank account, payment institution account, or prepaid payment account.

• PayNow (Singapore): The Monetary Authority of Singapore introduced PayNow to facilitate real-time payments between bank accounts of participating banks in Singapore. It also allows customers to make payments with mobile numbers, National Registration Identity Card numbers, or Unique Entity Numbers.

• Swish (Sweden): Swish, which more than half the Swedish population uses, is a mobile app that facilitates real-time payments between individuals, as well as between individuals and businesses.

• New Payments Platform (Australia): The New Payments Platform (NPP) in Australia supports real-time payments between accounts at participating Australian financial institutions. It also offers PayID, a feature that allows customers to make payments using information that’s easy to remember, such as a mobile phone number or email address instead of a bank account number.

Each year, more countries develop and launch their own solutions. Learn more about where Stripe supports real-time payments.

Benefits of real-time payments

Real-time payments offer many benefits for businesses, financial institutions and customers. These include:

• Stronger cash-flow management: With RTPs, businesses can receive funds immediately after a transaction is made. This instant transfer significantly improves cash-flow management, allowing businesses to use funds as soon as they’re received, rather than waiting for days for a transaction to clear. This is particularly beneficial for small businesses concerned about cash flow, payroll, and vendor payments.

• Increased efficiency and productivity: The immediate nature of RTPs eliminates the need for manual intervention in payment processes, increasing overall operational efficiency. Consider a utility company: with an RTP transaction, the business no longer needs to wait for cheques to clear or for batch processing of electronic payments. Instead, the business can receive payments instantly, reducing the administrative burden.

• Available at all times: Traditional banking systems are restricted by “banking hours” and often don’t process transactions during weekends or holidays. But RTPs operate at all hours, allowing businesses to send and receive payments at any time. This is particularly advantageous for ecommerce businesses that have customers in different time zones and operate around the clock.

• Improved customer experience: Customers who use RTPs enjoy the convenience of making instant payments anytime, anywhere. This can significantly enhance the customer experience, particularly in sectors such as ecommerce and software-as-a-service (SaaS). For instance, a customer who purchases a digital product can pay and gain access to the product instantly, which creates a smooth and efficient purchasing journey.

• Immediate payment confirmation: RTP transactions provide immediate confirmation of payment, assuring businesses that those transactions have successfully completed. This can be important for industries such as real estate, where instantly transferring and confirming large sums can expedite the entire process.

• New business opportunities: RTPs also open doors for new business models and opportunities. Consider the gig economy, where freelancers and contractors often have to wait for days or weeks to get paid. RTPs enable instant payment upon the completion of work, making life significantly easier for gig workers.

• Data-rich transactions: RTP systems can carry more data than traditional payment methods, providing businesses with valuable insights. For instance, an RTP transaction can include invoice details, purchase order numbers, or other relevant information, making it easier for businesses to reconcile payments and manage accounts.

To make full use of these benefits, businesses need to invest in the necessary infrastructure to facilitate RTP transactions and ensure they have excellent, robust security measures.

Risks and challenges of real-time payments

While RTPs offer many benefits, they also introduce new complexities that businesses and financial institutions must navigate with care.

• Fraud and security risks: Perhaps the most significant challenge of RTPs is the increased risk of fraud and cybercrime. RTPs process transactions instantly, leaving little time for banks and payment service providers (PSPs) to detect and prevent fraudulent activities. For example, once a transaction has been processed in an RTP system, it cannot be reversed, which could lead to significant losses if the transaction was fraudulent. As a result, businesses and financial institutions need to invest in advanced fraud detection and prevention technologies that can work in real time.

• Technology and infrastructure investment: Implementing RTPs requires a significant investment in technology and infrastructure. Businesses and financial institutions need to upgrade their systems to handle real-time transactions, which can be a complex and costly process. For example, businesses may need to implement new application programming interfaces (APIs), upgrade their existing banking and payment systems, and make sure they have the necessary security measures in place.

• Regulatory compliance: RTPs are changing rapidly and are subject to different regulations in different regions. As a result, businesses and financial institutions need to ensure they are fully compliant with all relevant laws and regulations. This can be particularly challenging for businesses operating in multiple jurisdictions.

• Interoperability: For RTPs to be truly effective, they must be widely adopted and fully interoperable with other systems. Businesses and financial institutions need to confirm that their RTP systems can interact with other payment systems, both domestically and internationally. Achieving this level of interoperability can be a significant challenge, as different networks often run on incompatible technical standards, messaging formats, and settlement rules, making cross-system communication difficult to coordinate.

• Customer adoption and education: For businesses to fully benefit from RTPs, their customers must be willing and able to use these systems. This requires educating customers about the benefits of RTPs and addressing any concerns they may have, such as security or privacy.

• Risk management and governance: RTPs bring different risks than traditional payment systems, and financial institutions using RTPs should rethink their risk-management strategies. Institutions need to maintain strict best practices to handle potential operational risks, such as system failures or transaction errors.

While real-time payments offer considerable benefits, they also present challenges that must be managed carefully. Businesses and financial institutions that want to implement RTPs need a thoughtful approach that includes investing in the necessary technologies, ensuring regulatory compliance, managing risks effectively, and promoting customer adoption.

Real-time payments vs. ACH payments

Both real-time payments and ACH payments are bank-based transfer methods, but they differ in speed, finality, and use case. ACH is a batch-processing system built for volume and low cost, while RTP is designed for immediacy and certainty. The right choice depends on whether speed or cost matters more for a given transaction.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments or get started today.