In many areas of life today, people expect instant gratification.
The incumbents of the banking space have been slow to adapt to this new reality, but things are beginning to change.
Both businesses and consumers all over the world are quickly realising the importance of speed and convenience in transactions, and new businesses and technologies are sprouting up to fill the demand.
The evolution of real-time payments
Historically, payment systems in the traditional finance world were bound by bank hours and processing times that could often span several days. The digital age allowed for fund transfers to commence electronically, yet these often fell short of real-time capabilities, as well. Even today, some banks still won’t process a transfer made after business hours until the following morning.
Despite this, there have been many advances in technology that can help facilitate real-time payments. The way that APIs have evolved has revolutionised the way that different financial institutions can interact with one another, and digital ledger technologies have allowed for more transparent recordkeeping. Advanced predictive analytics has been important, too, as a means of quickly identifying fraud and assessing other risks.
This has led to different solutions rolling out in different parts of the world. The Central Bank of Brazil introduced the PIX system that enables 24/7 instant payments, while in Sweden, Swish allows both individuals and businesses to send money instantly with just a mobile number. India has the Unified Payments Interface (UPI), and Canada uses Interac e-Transfer for real-time payments. These solutions are not identical, but they all aim to solve similar problems.
Investors find the industry attractive, too. Nicolai Chamizo (pictured) and the team at Incore Invest are one such example, having already made investments in FinTech companies like Mynt and SAVR. As the technology continues to improve, we should expect many new creative ideas and start-ups seeking funding to appear.
Impact on businesses and consumers
Real-time payments have impacted businesses and consumers in many different ways. One major benefit for businesses lies in cash flow management. When companies can access their funds instantly, their liquidity improves, and they’re able to have more freedom in the decisions that they make. Being able to reconcile accounts in real time makes bookkeeping much simpler, as well.
This instantaneous nature of transactions has also paved the way for new types of business models. Subscription services, pay-as-you-go offerings, and on-demand platforms all thrive when they integrate real-time billing. You only need to look at the investment flowing to companies providing solutions in this space for evidence of just how impactful it is. Brite Payments’ recent $60 million fund-raise is a perfect illustration of that.
For consumers, the major benefits are around both simplicity and security. When two friends go out for dinner, one friend can pay with their card while the other can send a payment to them in real time that covers the cost of their meal. These transactions are very secure, too, and save you the hassle of needing to handle cash.
In addition to that, real-time payments can help consumers manage their living expenses and general day-to-day life. What happens when someone needs to pay their rent, but their work pay hasn’t cleared in their account yet due to banking delays?
What if they think they have more money than they do because an earlier transaction hasn’t been deducted from yet, and then they later overdraw their account? Real-time payments solve all of these types of problems.
Real-time payments are quickly becoming not just an ask, but a demand. Both consumers and businesses increasingly view them as a non-negotiable part of transacting. All financial institutions will soon have no choice but to adopt this type of technology, and we can all look forward to a future economy where making payments is efficient and immediate.
