Real-time payments are an innovative and relatively new phenomenon in the financial world. They are payments that are done almost instantly. Lately, improved digital infrastructure has allowed us to make real-time payments a more spread out innovation, with more and more countries implementing it.
Difference Between Real-Time Payment And Fast Payment:
A lot of people mix up real-time payment with fast payment, however, they are not the same. There are similarities between them but are still fundamentally different. Fast payments settle payments within minutes, they are certainly fast, but they are not instant. This is the key difference between these 2 types of payments and they should not be mixed up. Fast payments are fast, but they are not instant, and this is the clearest way to make a distinction between the two.
What Does Real-Time Payment Bring?
They bring multiple things to the table. First and foremost, speed. They offer the fastest payment solution in the world. They are particularly useful for businesses and individuals that need instant payment transfers. What makes them different is the end-to-end communication channel that they offer. This differs from standard payments greatly. The reason being is that traditional transactions function on a payer to payee basis. The system in which the funds are being transferred does not allow a mutual exchange of information, and thus, the two involved parties have to reach out outside of the system in order to exchange information. This is no longer a factor with real-time payment. It offers a payment solution where the payer and payee can connect payment data with each other in a single transaction.
Additional issues for standard payments are missing transparency and lag during transactions. This, paired with a lack of communication between the two involved parties can cause significant problems in managing the payment as well as the security of the transaction.
Thankfully, real-time payments nullify these issues. With a developed flow of information involving both of the parties, the communication channel during the payment is secure while also offering confirmations for instant payments that give you more control over the transaction and makes the entire process much more efficient.
Real-Time Payment Mechanisms:
There are 3 primary mechanisms for real-time payments, they are:
- Real-time payment transfers from 1 bank to another with the use of a unique ID or a mobile phone number
- Instant bank transfers using account ID’s
The main differences between them are in several categories.
Instant bank transfers remain less secure than real-time payments and involve the possibility of hijacking an insecure network.
Real-time payments are more secure, they also require more information and details to be added in order to make a payment.
E-wallets, on the other hand, offer better security because they can have less money on them at a time, but they are more prone to malware attacks.
Limits For Transactions
Instant bank transfers have the highest transaction limit of the 3, but it can still vary from bank to bank.
Real-time payments are lower than instant bank transfers and can vary from bank to bank.
E-wallets have the lowest limits out of the 3.
What Are The Current Trends?
There are several new trends in the financial world that influence real-time payments.
- Some IT giants like Google are leveraging the existing digital infrastructure in order to boost innovations.
- Instant payments are becoming an innovation leader. As more IT and financial institutions and businesses see the worth of real-time transfers, they are coming up with new and improved payment solutions in order to boost their own efficiency around the established structure. This is most notably noticed with experimentations with cryptocurrencies.
- Microeconomies are becoming more fueled by the emergence of real-time payment. Because of real-time payments, the current landscape actively encourages innovations and efficiency, especially with businesses since this entire system allows them to have better control over their finances and capital.
How COVID-19 Impacted Real-Time Transactions
COVID-19 has impacted the world in many ways, it has led to the decline of some industries, while it surged the growth of others, mainly digital ones. With this said, COVID-19 has greatly impacted real-time transactions because there has been a surge in its use since the pandemic. Research has shown that more than 70.3 billion real-time payments transactions were processed in the world during 2020. This has led to a growth of 41% in comparison to previous years. This is a massive increase in use. It has truly made real-time transactions break into mainstream use around the world, with some nations like India, China, and South Korea leading the way in its use.
This should come as no surprise as everyone is trying to adapt to the current situation by digitalizing every part of their business in order to not lose numbers and not gain a bad reputation as being stimulative to the spread of COVID-19 or disobeying government policies. This combined with the trend of digitalization and the growing need for efficiency has led to the rational conclusion that real-time transactions will get a significant rise in this current social climate. The pandemic has shown that this mechanism for payment has its merits and now it has cemented itself as a significant way of conducting payments while also providing payment solutions to the needs of business flexibility, social distancing, and efficiency.
Interactions With Visa And Mastercards
The biggest giants in the payment transfer industry are Visa and Mastercard, and of course, we must mention how they are interacting with real-time payment. Since Mastercard has incorporated VocaLink and Nets, they have strived to increase the reliance on digital payments and move off from traditional ways of payment. Since then, Mastercard offers payments in online transactions, bank transfers, phone wallets, card payments, etc. And as the need for digital payments increases, both Mastercard and Visa have gotten their eyes on this growing trend. As more countries around the world adopt this growing trend, both of these giants in the industry are seeking to gain more influence in real-time transfers and secure their top spots in the world.