What is Real Time Payment (RTP) ?
Real-Time Payment (RTP) is a data-rich and API-friendly account-to-account payment system that facilitates channels for open banking. RTP is a highly secured payment channel through which a payee can initiate a digital payment request from the payer via API. The payer receives this request on their devices and can choose to pay partially, pay fully, decline, or ask for information. If the payment is confirmed, the money is automatically transferred to the recipient’s account instantaneously. This brings several benefits such as lower costs, better cash flows for the businesses, more autonomy to payers & payees, provision for contactless payment system, etc. Moreover, RTP networks also provide 24x7x360 access, which means regardless of holidays and bank hours its users can always process their transactions. However, the critical aspect of RTP is the security it provides to its consumers.
Amidst the hysteria about data privacy, it is very critical for consumers to be able to make account-to-account transactions with full transparency and greater autonomy. At the same time, for financial institutions, there should be better provisions for data access, secure data sharing, and the ability for third parties to participate in the process. RTP serves these needs on both the consumers and the financial institutions’ end. According to Visa’s Back to Business Study 2021 Outlook, 49% of consumers think using account-to-account payment channels like the one facilitated by the RTP network is among the most important safety measures for stores to implement and maintain.
Banks interested in connecting to RTP network in the US work with tech providers like Dwolla, Synpases Fi, Galileo Fi, Sila, etc. Facilitated by these tech providers, today the The Clearing House (TCH)’s RTP network called SameDay ACH is accessible to financial institutions that hold 75% of U.S. demand deposit accounts (DDAs), and the network currently reaches 61% of US DDAs. Launched in four phases, SameDay ACH was announced in 2016 and was launched in its full capacity in 2021 and is currently the only RTP network in the US operating in its full capacity. On the other hand, FedNow is another RTP channel due to be launched in 2023 by the Federal Reserve. It seems though a lot of fintech companies are waiting until the full launch of Federal Reserve’s FedNow before they build their products and services around the Same Day ACH. Because, as it stands, Federal Reserves has warned that Same Day ACH and FedNow will most likely not be interoperable. It will be interesting how the FinTech and banking landscape will evolve once FedNow will be launched at its full capacity.
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If you liked this, please watch out for my next blog on comparative analysis of RTP tech providers in the US.