The rise of real-time payments: A transformative shift in banking and transactions

The banking and payments sectors have entered a transformative period, with advancements in automation and technology reshaping how transactions are conducted. As businesses and consumers increasingly demand quicker and more efficient methods of payment, financial institutions are rising to the challenge, prioritising the development of real-time payment systems.

Jim Colassano, Senior Vice President of RTP Product Development at The Clearing House, highlighted the significance of this evolution in a recent interview with PYMNTS. He noted the launch of the RTP® network approximately seven years ago marked a pivotal moment, as it was the first new payment rail introduced in the United States in nearly five decades.

Colassano remarked that real-time payments experienced a strong surge in 2024, with expectations of not only continued progress but also an acceleration in growth for 2025 and 2026. He stated, “We are looking for more activity, more volume, more use cases. We see them expanding month after month.” This trend indicates a shift in consumer expectations, pushing for payment systems that parallel the rapid pace of digital interactions seen across various industries.

In response to evolving business practices, the RTP network is set to enhance its capabilities further with an increase in transaction limits to $10 million, effective February 2025. This adjustment is anticipated to facilitate quicker access to funds for businesses, thus improving cash flow management, reducing payment cycles, and strengthening supplier relationships.

Colassano observed that while the initial transition to real-time payments may require some adjustment, users quickly grow accustomed to the new speed. He pointed out the momentum in core applications, particularly in payroll, as organisations move from traditional biweekly or semimonthly payroll cycles to more frequent payments. “It might take organisations and individuals a little bit of time to originate their first transaction or to receive their first instant transaction, but once they do, they do not want to go back,” he said.

As the landscape for instant payments develops, it is essential for financial institutions to adopt robust fraud detection and prevention measures to ensure safe transactions. Colassano noted that while there has been a rise in fraud concerning check payments, the RTP network has thus far remained resilient, with no significant fraudulent activity reported. The implementation of ISO 20022 messaging standards enhances real-time monitoring capabilities, allowing banks to analyse payment activities more thoroughly.

Looking towards the future, cross-border transactions have long been encumbered by inefficiencies marked by delays and high costs. Colassano indicated that there is significant potential for real-time payments in this arena, as demonstrated by a successful proof of concept for near-instant cross-border transactions between TCH and EBA Clearing, which showcased the ability to settle payments within 30 seconds.

However, scaling such innovations globally will necessitate more than just technological advancements; it will require the establishment of a comprehensive business and regulatory framework to support widespread adoption. Colassano anticipates that while challenges related to legacy systems and enterprise resource planning (ERP) infrastructures may impede some businesses from embracing instant payments, momentum will build as customer demand grows.

He asserted, “As we see the customer demand increase, you’re going to very, very quickly see the technology companies get on board and make the changes,” predicting a swift transformation in the payment landscape in response to market dynamics. Businesses that proactively invest in modernising their payment infrastructures stand to gain substantial advantages from the increasing prevalence of faster and more efficient transaction methods.

Source: Noah Wire Services