Real Time Payments (RTP)/Instant Payments to Grow

Increasingly, companies are searching for new and innovative ways to process payments faster. Real-Time Payments (RTP, or Instant Payments) will become more widespread over the near future. The name refers to the speed at which a payment is credited to a payee’s account.

These real-time payments are each part of a “payment rail,” or a specific type of network. The networks generally close their transactions almost instantaneously, operate 24/7 and are considered “open loop.”

"Closed loop" systems are operated by a single central provider or institution at which both the payer and the payee must have an account. Thus, these in-house transfers can be prompt. However, the receiver of the funds may want to transfer the money to another system, such as a traditional bank, which takes time and may involve fees, because the transaction is no longer in-house. An “open loop” strategy, in contrast, enables much wider groups of payees and payors (and their financial institutions) to interact instantly and conveniently.

The Automated Clearing House (ACH) in the United States, a funds transfer institution that has operated for decades, launched its own “RTP” in November 2017. This network can be used by any federally insured institution to process payments 24/7. It facilitates payments such as direct payroll deposits, account-to-account (A2A) transfers, etc. Recent changes in its rules are enabling many transactions to clear through the ACH system on the same business day.

National banking systems worldwide, including those in India and China, have been slowly rolling out instant payments systems. This is a massive improvement over traditional bank wire and bank transfers, which can take many days to complete.

In the U.S., FedNow is a new instant payment service that the Federal Reserve bank system is creating to enable all of its member institutions throughout America to provide instant payments. The service launched in July 2023, with a limited number of banks, credit unions and other firms participating from the start.

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