One of the most frustrating feelings that a business owner would know all too well is waiting for a payment to reflect. Those pending transactions would subsequently result in delayed supplier payments, causing further frustration. And it seemed like a never-ending cycle.
Even though we live in the age of instant communication through technology and even next-day deliveries, it appeared that the financial world was behind left behind.
That waiting period is more than just a convenience, it places unnecessary pressure on cash flow. Businesses, both big and small, have to constantly follow up and live in financial uncertainty.
But with the rise of Real-Time Payments (RTP), is the waiting game finally over?
What Exactly Is A RTP?
RTP is a digital money transfer that, you may have guessed, reflects in the recipient’s account instantly. You can make a payment any time of the day, any day of the week, including weekends and holidays.
It’s certainly a one up from cheques and ordinary bank transfers which can take days to deposit and clear. In the UK, the Faster Payments Service is using new technology and infrastructure to make the process immediate and irreversible once the payment has been made.
Account-to-Account (A2a) payments have facilitated the evolution of RTP, allowing money to move directly from one account to another. In fact, Visa was able to recently complete their first commercial Viable Recurring Payment (cVRP) through their A2A service in the UK.
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How Does RTP Affect Cash Flow?
The most significant impact of RTP is that it frees up a company’s liquidity and cash flow. Since the constant movement of money going in and out is the lifeline of the business, any delays could be financially crippling especially for small and medium-size enterprises (SMEs).
Instant Capital To Work With
As soon as a payment is received, that money can be utilised straight away. That means that businesses don’t need costly overdrafts or short-term loans to be able to cover their immediate expenses.
There’s also zero float risk, meaning owners aren’t burdened with the uncertainty of not knowing when a payment will reflect. This also helps with more accurate financial forecasting long-term.
Better Customer Service
Today’s customers want speed and convenience. If they need a refund, it can be done instantly instead of having to wait 3-5 days. This takes a potential weak point and turns it into a positive interaction, which should boost customer satisfaction and bring them back again in the future.
For insurance companies or lending services specifically, RTP means faster payouts and this will play a huge role in competitor differentiation.
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Increased Efficiency
Some businesses need to work around the clock, especially if they operate globally. It’s also often the case with most e-commerce companies. With RTP, these businesses are no longer restricted to banking hours and are able to pay and receive money from customers and partners any time of the day – or night.
The Risks To Be Aware Of
There are clear benefits to RTP but of course, the real-time payments landscape doesn’t come without its own challenges. Here are some of the main issues that may cause concern.
Fraud and security risks: While immediate and irreversible payments are a benefit, it’s equally risky. If a transaction is fraudulent, there’s no time to stop it before it goes through. This would happen in a case where a customer, or even a business, is tricked into making a payment to an illegitimate account or person.
The cost involved: Even though sending a payment instantly is cheaper, banks still have to invest billions. This is to cover the initial set up. Ultimately, they would need to determine a fee structure where they could recover that initial cost.
Upgrading legacy systems: Some banks use computer systems that are incredibly outdated, meaning they can’t handle 24/7 payments. It’s both a challenge and extremely costly to upgrade these systems or invest in new ones.
The Road Ahead For Business Banking
With the shift to instant payments, the future of business banking is set to be far more flexible. It’s expected to become the norm and real-time transfers will be the default expectation for businesses around the world. This way, companies can rely on funds moving immediately, regardless of time or day.
RTP will also give rise to something called invisible payments. As these payments happen smoothly on their own, they’ll eventually start to go unnoticed – think a delivery vehicle paying for its own toll without the driver needing to do anything. These transfers will happen in the background, speeding up business processes and making them smarter than what they were before.
Put simply, RTP will offer businesses the support they need in an always-on global economy that never switches off.
