The Need for Speed Drives Demand for Real-Time Payments in B2B Commerce -- Rodrigo Figueroa, Chargeback Gurus

By Rodrigo Figueroa, COO, Chargeback Gurus

Open banking initiatives have spurred rapid adoption of real-time payments (RTP) around the world, especially in countries like India, where 41 million RTP transactions are processed every day, and Singapore, where 80% of businesses and consumers are registered to use the national RTP scheme, PayNow.

While the US hasn’t been quite as eager to embrace RTP, the trend shifts occasioned by the COVID-19 pandemic, along with some encouragement from the Federal Reserve, is driving growth and greater normalization of RTP options in domestic retail, person-to-person (P2P) and business-to-business B2B payment environments.

Current State of RTP in U.S. B2B environment

In 2015, the Federal Reserve created a Faster Payments Task Force to find solutions that could meet the needs of the modern global economy. This led The Clearing House to launch the RTP Network in 2017, the first payment rails designed to handle real-time transfer and settlement of funds. FedNow, an RTP project from the Federal Reserve itself, is slated to launch in July 2023.

The key difference between RTP and platforms like PayPal or Venmo is that RTP transactions allow open-loop transfers directly between bank accounts, instead of tapping into a prepaid fund balance managed by the payment platform that is only available to the participants of that specific product. In addition, close-loop systems lack interoperability between them and the broader financial ecosystem.

Right now, the biggest player in the US RTP market is The Clearing House’s RTP Network—but competition is on its way. This July, FedNow will go live, offeing consumers even more options for making instant payments. More than 120 banks, including Wells Fargo and US Bank, are currently participating in FedNow pilot programs.

For its part, the RTP Network has increased its reach by partnering with Fiserv, which now offers an RTP-compatible payment gateway to the thousands of financial institutions it serves. Currently, The Clearing House estimates that 61% of bank account holders in the US have access to the RTP Network.

Adoption Drivers

The primary driver of RTP adoption is today’s culture of immediacy. With a digital economy, anything can be streamed or downloaded in only a few clicks, and most major e-commerce retailers are happy to offer next-day shipping. Everything has become faster, yet payments infrastructure in the US is lagging behind both developed and developing countries.

RTP presents an Opportunity to Establish a Competitive advantage

RTP means instant, as in the money is right there in your account as soon as the transaction is completed. That’s of clear benefit to the receiver and usually the sender too, but the specific advantageous uses cases of RTP can be broken down further:

Small business/gig worker payments – Gig workers, small business owners, and independent contractors are more prevalent than ever, with 36% of Americans engaged in some type of freelance work. Cash flow can be an issue for them, especially when they have to wait days for checks to clear or let third-party payment platforms take a chunk of their earnings with every bank transfer. With RTP, they get paid immediately.

Real-time bill payments – Few things are worse than rushing to make a last-minute bill payment only to find that you’re still subject to a late fee—or worse, account termination—because the funds didn’t get to the merchant by the due date. RTP transfers the funds the instant the payment is completed.

Payments are irrevocable – This benefit can be a double-edged sword, especially for buyers, but merchants will appreciate the fact that RTP transfers can’t be unexpectedly clawed back by avoidable or fraudulent disputes. However, merchants often bear the responsibility to protect consumers.

RTP Changes Economics of B2B commerce

Clear demarcations between the ecosystems of RTP providers and third-party payment apps may not hold up long, as the third-party platforms add RTP options to their menu of services. Venmo and Zelle have been offering RTP integration since 2021. US consumers will, of course, want to be able to use their preferred RTP platforms when they shop with international merchants. With so many other countries having already built their own national RTP rails, interoperability will be one of the larger challenges going forward.

With the RTP Network and FedNow set to offer instant payment coverage through a wide array of banks within the next year, now is the time for B2B retailers to start figuring out the best and most cost-effective ways to accept it.

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Rodrigo is an international Risk Management professional with experience spanning countries in the Americas, Europe, and Asia. With over 20 years of experience in the Investment, Commercial and Consumer Banking industry, Rodrigo brings in a robust governance and control background offering extensive knowledge in eCommerce, payments, cards, P2P networks and Electronic Wallets. He is fluent in English, Spanish and Portuguese. Rodrigo's background and exposure to different markets and cultures have allowed him to achieve great results in diverse and challenging environments.

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Contributed ArticleMay 12, 2023