Understanding Real-Time Payment Processing

Real-time payment processing allows for the immediate transfer of funds 24/7, enabling online retailers to carry out transactions automatically at any time of the day. The high speed of transactions enables businesses to optimize cash flow management, simplify administrative processes and create an easy user experience for customers in all time zones.

An integrated online payment solution from Access2Pay, incorporating a payment gateway and payment processor, enables real-time payment processing. The ability to do real-time processing is essential for the success of online retailers. Here is what you need to know about real-time payments and their benefits.

Traditional payment systems can take hours or even days to settle transactions. With real-time payments (RTP) systems, however, this process is instantaneous, with funds being immediately transferred from the customer’s bank to the business’s. Once the transfer takes place, the funds are immediately available to the recipient.

In the United States, The Clearing House and FedNow Service are the most widely used RTP networks. FedNow is a solution provided by the Federal Reserve, while The Clearing House is a new, privately owned network that provides instantaneous settlement and availability. In Canada, RTPs are primarily handled by Real Time Rail (RTR). Working with MasterCard’s Vocalink, RTR is designed to provide secure, instant payments for Canadian businesses and their local and international customers.

RTP systems facilitate the immediate transfer of funds between your customers and you. They do so by rapidly taking transactions through the following process. Remember that this entire process is completed in a matter of seconds:

The customer initiates the transaction. This could happen through the business’s website or app, an online banking platform, or a mobile banking app. It can also be initiated at a physical location, such as your store. It can be initiated through the manual entry of credit card or other payment details, or by swiping or tapping the card. The process can easily operate across multiple channels, making it highly flexible and adaptable.

Next, the RTP system facilitates the authentication and authorization of the transaction. The payment information is sent to the customer’s bank, which authenticates the customer’s identity via security checks such as passwords, biometrics or two-factor authentication. The bank then checks whether the customer has sufficient funds for the transaction and either approves or declines the transaction.

Once the transaction has been authorized, the customer’s bank sends payment instructions through the RTP system. The RTP system is usually a network operated by a financial service provider or a group of banks. RTPs process individual transactions, rather than operating batch settlements, as traditional payment systems do.

Once the payment has been processed, the payer and the payee receive immediate notifications about the transaction. This could be via email, SMS or on the banking app itself. Once this notification is received, both parties can be certain that the transaction can be completed. The money is now in the payee’s account and it is safe for the payer to receive the goods or services they have ordered.

The last step in any transaction is the settlement. With traditional payment systems, settlement usually happens at the end of the business day, or even a day later. With RTP systems, however, the settlement takes place almost immediately.

RTP systems offer several essential benefits for all parties – businesses, financial institutions and customers:

With RTPs, your business receives funds immediately after a transaction is completed. There is no lag between the approval of a transaction and the moment when the funds are available in your account. This can help you improve your cash-flow management, allowing you to utilize funds as they’re received, rather than waiting for a transaction to clear. You could potentially reinvest payments you receive immediately when purchasing new stock or raw materials.

With RTPs, your business receives funds immediately after a transaction is completed. There is no lag betw

The rapid, automated nature of RTPs eliminates the need for manual intervention in payment processes. As a result, your business’s overall operational efficiency will naturally improve. You no longer need to wait for batch processing or have a staff member work to initiate transaction approval processes. Multiple transactions can be processed automatically in the background without imposing any administrative burden on your company.

een the approval of a transaction and the moment when the funds are available in your account. This can help you improve your cash-flow management, allowing you to utilize funds as they’re received, rather than waiting for a transaction to clear. You could potentially reinvest payments you receive immediately when purchasing new stock or raw materials.

Traditional banking and transaction processing systems were restricted by standard banking and business hours. RTPs, on the other hand, operate 24/7, allowing businesses to send and receive payments at any time. This is a huge advantage for businesses that trade online and serve customers across multiple timelines.

RTPs facilitate a smooth and efficient buying journey. When you use an RTP, you offer your customers the convenience of completing transactions instantly, whenever they choose. This makes for an enhanced experience, which makes it more likely that customers will return.

With an RTP, once a transaction has been approved and completed, the funds are in your account, you receive a notification, and you can rest assured that the matter is settled. This is particularly important for businesses where the transfer of large sums is particularly important.

RTPs can open the door for new business ideas and opportunities. For example, by enabling instant payment upon the completion of work, freelance contractors and gig workers can realize fast payments, and make their businesses more efficient and profitable.

RTP systems carry more data than traditional payment methods, which helps businesses to keep more accurate records, and gather useful insights. An RTP transaction could include details such as invoice numbers, purchase order numbers and other relevant information such as customer contact details. Businesses can use this data to reconcile their accounts.

RTPs offer numerous benefits, but there are also some potential challenges to consider.

Unfortunately, RTPs present an increased risk of fraud and cybercrime. Since they process transactions instantly, they leave very little time for banks and payment processors to detect fraudulent activities. Once a transaction has been processed, it cannot be reversed, so if fraud has taken place, there is very little that can be done about it. This is not necessarily a reason to avoid RTPs; they would just need to be supplemented by advanced fraud prevention technologies that can work in real-time, and stop fraud instantly.

If you decide to use an RTP in your business, you will need to invest in a significant amount of technology to facilitate it. Your infrastructure will need to be upgraded to handle real-time transactions. This can be rather expensive and complex. The actions you would need to take may include upgrading your banking and payment systems, and implementing new Application Programming Interfaces (APIs).

The speed of RTP payment processing makes the technology potentially problematic for regulators and law enforcement. The technology is still evolving and it is subject to different regulatory frameworks in different territories. As a result, you may have to jump through a few regulatory hoops in order to become and remain compliant. If you operate in multiple territories, this could become even more complicated.

Before implementing an RTP, you will need to check that it is compatible with your existing payment system. It will have to be if you want to integrate seamlessly and effectively. Compatibility and interoperability are central considerations when it comes to RTPs – and achieving these can be a significant challenge. It depends on your POS system to a large extent. Some, such as Access2Pay, are more flexible and widely interoperable than others.

How much time and education will it take for your customers to adapt to your RTP? This is a crucial question, of course. If your customers are not willing or able to use an RTP, your sales may suffer. You would need to spend some time educating your customers on the benefits of your RTP, and provide a step-to-step guide to help them use it.

As mentioned before, RTPs present more risks than traditional payment systems, and the businesses and banks that use them will need to rethink their risk management strategies. RTPs require more strict best practices to prevent fraud, system failures and transactional errors.

Access2Pay is a customizable, cloud-based POS solution designed for use by businesses in a variety of industries, including retail (online and brick-and-mortar), auto services and entertainment. Our solution includes payment software for service-based franchises, as well as small, individually-owned boutiques and service providers. Access2Pay integrates seamlessly with other software packages and payment tools, including gateways and processors. It is completely capable of working together with real-time payment processing systems.