Real time payments, which enable the instant transfer of funds 24/7, present a huge opportunity for businesses to optimize cashflow management and create seamless payment experiences that improve customer loyalty by decreasing friction. In recent years, they’ve seen wide adoption across a range of countries, with one study estimating that transactions will reach $511 billion per year by 2027. 

But what are real time payments? And why should businesses care? In this article, we’ll take you through what you need to know about real time payments in 2025. 

What are Real Time Payments? 

As the name suggests, real time payments are ones that are processed instantly, 24/7. This is unlike some other payment systems, which can take hours or days to process transfers. With real time payments, funds are transferred in seconds between bank accounts, making them immediately available to the recipient. 

How Do Real Time Payments Work? 

There are a couple of steps involved, from payment initiation to settlement. We’ll cover each (briefly) below. 

Payment Initiation

The process begins when a sender initiates a payment through their bank or payment service provider. They input the recipient's details, including account information and the amount to be transferred. The sending institution then validates the payment details and checks for sufficient funds in the sender's account.

Authentication and Authorization

Once initiated, the system authenticates the sender's identity using various security measures such as two-factor authentication or biometrics. After confirming the sender's identity, the sending institution authorizes the transaction, ensuring compliance with regulatory requirements and internal risk management protocols before proceeding with the transfer.

Transaction Processing

The authorized payment instruction is then sent through the real-time payment network. The network validates the transaction and routes it to the recipient's bank. The receiving bank verifies the incoming payment and instantly credits the recipient's account. This entire process typically occurs within seconds, allowing for immediate availability of funds.

Notification and Confirmation

Upon successful completion of the transaction, both the sender and recipient receive real-time notifications. The sender's bank confirms that the payment has been processed and debited from their account. Simultaneously, the recipient's bank notifies them of the incoming funds, which are immediately available for use. This instant communication ensures transparency and peace of mind for all parties involved.

Settlement

The last step of the process – settlement – happens in seconds. Unlike payment methods such as credit cards and digital wallets, the funds are available almost instantaneously. 

A Brief History of Real Time Payments  

The history of real time payments goes back — further than you’d think — to 1973, when Japan launched its Zengin System. But it’s not used all that much and represents a paltry 3.7% share of total payments volume in Japan, a country that seems to overwhelmingly favor paper-based payments. 

Since then, about 80 countries have introduced their versions of real time payment rails, from PIX in Brazil to SCT Inst in Eurozone countries like Germany and France. 

What are the Benefits of Real Time Payments? 

Both businesses and consumers stand to gain from the flexibility and immediacy of real time payments. Here are a few of the main benefits: 

Stronger Cash-Flow Management

Real-time payments enable businesses and individuals to have immediate access to funds, providing better visibility and control over cash flow. This instant liquidity allows for more accurate financial planning, reduced reliance on credit, and improved working capital management.

Increased Efficiency and Productivity

By eliminating delays in payment processing, real-time payments streamline financial operations. This increased efficiency leads to significant time savings, allowing staff to focus on more value-added tasks and strategic initiatives, ultimately boosting overall productivity.

24/7 Availability

Real-time payment systems operate around the clock, 365 days a year. This constant availability breaks free from the constraints of traditional banking hours and batch processing schedules. Users can initiate and receive payments at any time, accommodating global time zones and diverse business needs. This flexibility is particularly valuable for e-commerce, international trade, and businesses operating in different time zones.

Improved Customer Experience

Instant payments significantly enhance customer satisfaction by providing immediate confirmation and availability of funds. This speed and reliability build trust and loyalty among customers, who appreciate the convenience and transparency of real-time transactions. For businesses, it means faster order fulfillment, quicker refunds, and the ability to offer more responsive customer service.

Transaction Certainty

Real-time payments provide immediate confirmation of successful transactions, eliminating uncertainty and reducing the risk of payment failures. This certainty allows businesses to release goods or services confidently, knowing that payment has been received. It also reduces the need for follow-ups and reconciliations, streamlining financial operations and improving overall transaction security.

Challenges of Real Time Payments 

While real time payments offer numerous benefits, there are some considerations that businesses should be aware of, from fraud risk to regulatory compliance. 

Fraud Risk

Businesses must remain diligent about putting stringent fraud controls in place to detect and block it. Real time payments are instantaneous, which means that businesses need to invest in robust and real-time fraud detection solutions. 

Infrastructure Investment 

Real time payments can also necessitate expensive upgrades to payments infrastructure. But solutions like Ivy make it simple, fast, and inexpensive to get started. 

Compliance 

Real time payments are subject to different regulations around the world and it’s important for businesses to make sure they’re dotting their I’s and crossing their T’s. This can be challenging for some businesses, especially those operating across multiple geographies. Using a real time payments provider can get you over the compliance hurdles. 

Customer Adoption

The adoption of real time payments still lags behind other payment methods like cards and digital wallets, so customer adoption is a key challenge that businesses need to solve. At Ivy, we have specific UX recommendations that companies can take to encourage users to choose this option at checkout. 

Conclusion

In conclusion, real-time payments represent a significant leap forward in the world of financial transactions, offering unprecedented speed, efficiency, and convenience. As we've explored, these systems provide instant fund transfers, 24/7 availability, and improved cash flow management, benefiting both businesses and consumers alike. While challenges such as fraud risk and infrastructure investment exist, the potential advantages far outweigh these concerns.

As we move further into 2025, the adoption of real-time payments is likely to accelerate, driven by increasing consumer demand for instant transactions and businesses seeking to optimize their financial operations. With continued technological advancements and regulatory support, real-time payments are poised to become a cornerstone of modern financial ecosystems, revolutionizing how we think about and handle money transfers in our increasingly fast-paced, digital world.

Sources: 

• ACI Worldwide - Real Time Payments

• ACI Worldwide - Real Time Payments in Japan

• Stripe

Sources last checked on: 24 January 2024