Our first post on real-time payment methods (RTPs) examined the recipe that makes a new payment method successful. But, once a payment method takes off, how does it grow and stay relevant for consumers and businesses in the face of competition? That’s where the action is taking place today.

RTPs did not emerge in a vacuum. They have gained consumer favor in many parts of the world at the same time other new payment methods have surfaced. These include wallets such as Apple Pay and Google Pay; buy now, pay later options such as Klarna, Affirm, and Afterpay; cryptocurrencies such as Bitcoin and USDC; and other payment methods such as Cash App Pay and Revolut Pay. Ten years ago, it was mostly cash, card, or check. Today, we’re in a world of payment method proliferation where customers have dozens of options for how to pay for almost any purchase.

Proliferation means competition. As we discussed in the first post in this series, RTPs took off thanks to banks, businesses, and consumers all finding mutual advantage in offering them. But to continue earning consumer preference, RTPs will have to keep improving as a payment method relative to alternatives.

The payment method bundle

Most payment methods start out with one value proposition (e.g., faster payments, or better access to credit). But to survive, payment methods have to evolve into versatile financial vehicles, usable for different types of transactions in different settings. You can think of a payment method as a bundle of services: the bigger its bundle, the better positioned it is to compete against other payment methods.

Credit cards in the US are a great demonstration of the payment method bundle. You can use them for small purchases or large ones, one-off payments or recurring transactions, online or in store. Their bundle also includes a wide range of additional features such as  fraud protection, rewards programs, and complimentary insurance when you rent a car. But their bundle has limits. RTPs gained a foothold by excelling in places where cards weren’t as strong, such as offering lower processing costs and support for peer-to-peer transactions.

RTPs still are not nearly as full-featured as cards and other legacy payment methods, though. They still have elements of an upstart product about them—disruptive in a few particular ways, but not a completely mature product. Today, most of the exciting developments with RTPs are about addressing those limitations, as those who offer RTPs expand the payment method’s bundle, improve its value proposition, and seek for it to be used by consumers in a wider variety of contexts. This is happening in three main ways: in-person payments, access to credit, and support for recurring payments.

Reducing in-person overhead

While commerce is increasingly moving online, in-person payments still account for over 80% of all payments. From the perspective of customers, a payment method that works great online might be useful in some areas of their lives, but it’s unlikely to become their default way to pay if it’s not also easy to use in stores. 

On the consumer side, the use of RTPs for in-person transactions varies significantly by market. One key thing to note is that using an RTP in person typically requires scanning a QR code with your RTP or banking app, and then approving the purchase. Whether that is popular depends a lot on existing habits, which can be hard to break. In some markets where card use is less prevalent, particularly in Asia, consumers actually prefer QR codes over cards and RTPs are widely used in person. In other markets such as Switzerland, RTPs have taken off for online purchases, but they have gained less traction in person. In these places, scanning a QR code is unfamiliar and can be seen as requiring more effort than tapping a card. As a result, cards tend to remain the preferred way of transacting in person, thanks to the convenience of contactless payments and the ease of use with card-based wallets.

On the business side, it’s all about the amount of hardware required to accept a payment method; and within that context, QR codes actually provided an initial advantage for RTPs. While cards required specialized hardware, businesses could begin accepting RTPs just by printing out a QR code—a low barrier to acceptance that was initially appealing to small businesses in particular. For a moment, RTPs had an advantage in terms of business overhead. But card payments have been catching up. Today, with Tap to Pay, anyone can accept payments from anywhere, using just their mobile phone. In other words, hardware overhead has turned from a weakness to a strength in cards’ bundles.

RTPs are trying to catch up, but until recently there was no easy way to process contactless transactions with noncard payment methods. However, Apple’s recent announcement about opening its NFC chip to developers might provide an opening. Today, NFC transactions are still all card-based, but in time, the standard might evolve to support noncard transactions—meaning “tap to pay” in-person transactions using RTPs.

Providing access to credit 

Credit allows consumers to smooth their consumption over time and make big purchases without needing to save in advance for them. It is also great for businesses because it can improve conversion and increase basket sizes at checkout. For decades, access to point-of-sale credit has been one of the most powerful competitive advantages for cards.

Other payment methods are not well positioned to offer it, because providing credit means acting as a short-term lender, and lending is a complex and highly regulated business. It requires capital, expertise in risk management, and access to data for making good decisions about what kinds of loans to extend. For most emerging payment methods, that’s a high bar to clear.

But many RTPs were created by banks, and banks specialize in lending. They have large balance sheets they can lend off of, decades of expertise in risk management, and a wealth of information about their users’ spending that they can leverage to make good credit decisions. As a result, many bank-led RTPs are adding credit offerings, typically in the form of installments. Examples include BLIK Pay Later in Poland or Pix parcelado in Brazil. These may be with interest or interest-free, depending on which bank the customer making the payment uses.

For consumers, this expands the range of purchases where they might be motivated to use an RTP. Previously, RTPs were less attractive for big purchases because they meant you had to pay for them all at once. Now, with credit offerings, RTPs are able to begin competing with cards for bigger purchases such as furniture or home appliances.

Recurring payments

In the early days of RTPs, customers had to approve every single transaction they made via an app. This was great for security, but it meant that RTPs could only really be used for one-time payments. Imagine if you had to approve your Netflix bill each month? That’s not something consumers or businesses want. This also made it hard to use RTPs in scenarios where you might want to store your payment method details, such as one-click checkout. The appeal of those experiences is that customers don’t have to authenticate each time, which is precisely what RTPs had required them to do.

RTPs’ functionality has started to expand to include these types of payments in many markets. NIP in Nigeria now supports recurring payments, as does TWINT in Switzerland. And BLIK has introduced one-click payments for faster checkout.

Bigger bundles, but still local bundles 

The expansion of the RTP bundle to include contactless in-person transactions, credit, and recurring and one-click payments has placed them in a stronger position to compete amid the proliferation of payment methods. It’s not too hard to imagine a future where RTPs include many of the same features as cards and become relevant for the same broad variety of transactions.

But even if these trends continue, RTPs are still held back by one of their core features: they are still mostly national solutions, and they don’t yet have a clear path to becoming a true global network. In the third and final installment in our series, we’ll take a look at the biggest open question for the future of RTPs: will they ever go global, including by gaining traction in markets such as the US and the UK that have been slow to adopt them so far?

The rise of real-time payments plays an important role in Stripe’s product roadmap. Learn more about how to toggle on supported RTPs in your priority markets.