In US, we don’t have something which people enjoy in many countries across the word and that is an ability to make free real time peer to peer or other payments for any amount. In my discussion with payment experts, I learned that countries like Singapore, Australia and UK have this service free of charge. Even countries like Nigeria and India are offering such real time payment services. For instance, India has the RTGS (Real Time Gross Settlement) for large amounts and IMPS (Immediate Payment Service) payment services for low amounts available to the public at no cost.
In US, there are 3 ways to transfer money to another person:
- ACH (Automated Clearing House) – it is an electronic house for processing large volumes of debit and credit transactions in batches. The batch system gives time lag of around 2-3 days for a particular transaction record to process through. More often than not, if you are transferring money without charges to your Aunt few states away, you would be using ACH.
- Wire Transfer – it is an electronic fund transfer system between people (P2P) and institutions (B2B, P2B, B2P) on an account to account basis. It takes about 72 hours in case of international transfers. More delay can be expected if holidays occur in between the business days. But this service doesn't come free and you have to pay $20 to transfer only $3000.
- Issue of Cheque - paper cheques have been in use for quite sometime now. The clearing of the cheques by the banks bring quite a time lag especially in case of inter-bank cheques issued.
Why are we deprived of real time payments? It is certainly a great opportunity for solutions like Square Cash and Dwolla to position their real time payment systems to the nation.
When a person writing a check and the guy receiving it has to wait for its clearance, its not a good scenario. Many say that they have got used to it. But the younger generation is living a fast paced life. The Millennials are challenging the status quo. There is a rising need for immediacy in payments whether it is banks, businesses or even peer to peer. Solutions are available in the market for immediate transfer of funds.
People and businesses worldwide want payment systems that can achieve the desired speed of transaction, minimize the cost of transaction, reduce risks of fraud and bring satisfaction of service across different channels. That’s where Real Time Payments comes into picture.
Vocalink, a global payments partner based out of UK, has cited how real time payments can bring about three key stakeholder benefits:
Consumers – real time payments can be performed for purchase from businesses and refunds, if required, can be done back into consumer’s account almost instantly. Consumers can also perform emergency fund transfers late at night and overseas as well.
Banks – real time payments can help in gaining edge over competitors by offering trusted solutions to retail and corporate clients using gateways like mobile for payments as well.
Businesses – real time payments can bring change to functions like payroll methods. Other perceived benefits could be immediate payment rejection notifications, better cash forecasting and speedy disbursement of funds.
Practical examples of real time payments can cited via following services:
- PayNet, developed by FIS, provides instant P2P, A2A and wire transfer alternatives, real time account and balance validation, direct mobile/electronic wallet access to deposit accounts, accelerated cross-border remittances and immediate cheque processing.
- Dwolla allows payments via email, text message proximity or Dwolla ID. It has been used by big businesses for tax payments as an alternative to cheques. It also provides a MassPay feature for big scale B2B payments.
- Fiserv has updated its existing person-to-person payment service with an Instant Payment Option. The new features include online and mobile banking using another person’s either name and account number, email address or mobile number.
- Vocalink, a global payments partner, provides a real time payment platform in Singapore called FAST. With FAST, businesses and consumers in Singapore are able to electronically transfer funds between accounts held at participating financial institutions within seconds rather than the usual 2 or 3 business days it used to take.
Global mobile, social and cloud trends will force banks, businesses and consumers to adopt real time payments. When eBay needed low cost real time payment system, it brought about PayPal which has gone a long way from being an online payment gateway to a rapid way of paying via smartphones. With the current payment technology trends, it has become easier to develop new real time payment systems which companies like Facebook are looking at. There are some examples such as from UK, India where banks have joined hands to bring about one real time payment system.