Not all digital payment methods are equal, even if big players like Alipay, Paypal, or Apple Pay appear innovative. These providers function as traditional payment providers and true innovation happens behind the scenes.
Real-time payments - the transfer of funds between bank accounts in a flash - are one example of such innovation. According to data from ACI Worldwide, 9.8% of global electronic transactions were done in real-time in 2020.
India was the top dog in real-time transaction value at $25.5 billion, followed by $15.7 billion in China and $6 billion in South Korea. Even Thailand came out ahead of the UK in real-time payments, ranking sixth, ahead of Nigeria.
Both developed and developing countries are getting in on the action, showing that countries with less developed payment systems can come up with the bee's knees in payment solutions. Mobile money, the use of mobile phone accounts instead of bank accounts, is thriving most in South Asia and Sub-Saharan Africa, with some savvy operators getting in on the ground floor.
The evolution of payment processing
Real-time payments have been around since the inception of money itself, but payment delays became the norm as financial markets became interconnected and sophisticated. Real-time payment processing systems remove technical bottlenecks, allowing consumers and businesses to make payments instantly and ushering in a new era of contextualized commerce. While just 1.8 billion real-time transactions took place in the U.S. in 2022, real-time transaction volume is expected to hit 8.9 billion in 2026.
Traditional payment processing methods
The evolution of payment processing started with traditional payment methods that included cash and checks. Сhecks are still widely used in some industries, such as the real estate and legal industries. Companies generating between $20 million and $1 billion in sales have been relatively slow to adopt real-time payment technologies, according to a recent PYMNTS study, which found that these middle-market firms receive 4% and make 4% of their payments via RTP.
Credit and debit card transactions were the next big thing in payment processing. Credit and debit card transactions became popular due to their ease of use and convenience. However, they still have slower settlement times, taking a few days to clear. This delay is because banks have to confirm that the transaction was legitimate and the funds are available. Nonetheless, credit and debit cards have become a standard method of payment for consumers worldwide.
The shift toward digital payments
The shift towards digital payments has been a real game-changer, with online banking and mobile payments leading the charge. They've provided a lot of bang for the buck, with increased convenience and accessibility to customers, and their popularity has been skyrocketing worldwide. These payment methods offer a ton of benefits, including the ability to pay from anywhere, anytime, and on any device, with just a few taps. The adoption of these payment methods has taken off like a rocket, especially with the ongoing pandemic.
Another big wig in the payment processing arena is the emergence of cryptocurrencies and blockchain technology. Cryptocurrencies are decentralized digital currencies that offer the potential for faster and more secure transactions. They also increase transparency in the payment process, making it easier for people to keep an eye on transactions. The underlying blockchain technology provides a secure and tamper-proof record of transactions, making it highly suitable for payment processing, especially for cross-border transactions. Although the adoption of cryptocurrencies is still in its early stages, the potential payoffs for businesses and consumers alike are off the charts.
Understanding high-risk and low-risk business challenges
Common challenges faced by high-risk businesses
High-risk businesses encounter various challenges, which can include the following:
- Meeting regulatory compliance: High-risk businesses often have to adhere to stringent regulations and stay up-to-date on changes in rules to maintain strict compliance.
- Accessing banking and financial services: Due to potential legal liabilities or reputational risks, financial institutions may be hesitant to work with high-risk businesses, making it difficult for them to access banking services, loans, and lines of credit.
- Securing payment processing solutions: High-risk businesses may struggle to find reliable payment processing providers as many avoid working with them because of higher chargeback rates and fraud risks.
- Obtaining appropriate insurance coverage: High-risk businesses may find it challenging to get suitable insurance coverage at reasonable rates since insurers may view them as more likely to file claims.
- Managing reputation: High-risk businesses may encounter negative public perception, which can impact their ability to attract customers, employees, and investors.
- Addressing fraud and security risks: Due to their operations or customer base, high-risk businesses may be more susceptible to fraud, theft, and other security risks.
- Recruiting and retaining skilled employees: High-risk businesses may have difficulty attracting and retaining skilled employees because potential employees may be wary of the company's reputation, industry risks, or potential legal issues.
- Facing legal risks and litigation: High-risk businesses may encounter a higher likelihood of legal issues, such as lawsuits, fines, and penalties, which can be costly and time-consuming.
- Navigating fluctuating market conditions: High-risk businesses may be more vulnerable to changes in market conditions or economic downturns, making them more susceptible to financial instability.
- Managing supply chain: High-risk businesses may face difficulties in securing reliable suppliers as some suppliers may be hesitant to work with them due to potential risks.
Low-risk businesses challenges
Low-risk businesses also face challenges, though they may differ from those of high-risk businesses. Some common challenges that low-risk businesses encounter include:
- Competition: Low-risk businesses may face fierce competition from similar businesses in the market, making it challenging to stand out and attract customers.
- Access to capital: While low-risk businesses are generally viewed as less risky by financial institutions, they may still struggle to obtain capital to finance growth or cover operating expenses.
- Economic conditions: Low-risk businesses may be impacted by fluctuations in the economy, such as changes in consumer spending habits or interest rates.
- Recruiting and retaining skilled employees: While low-risk businesses may not face the same reputation challenges as high-risk businesses, they may still have difficulty attracting and retaining top talent in a competitive job market.
- Technology and innovation: Low-risk businesses need to keep up with technological advancements to stay relevant and competitive. This can be challenging, particularly for businesses with limited resources.
- Regulatory compliance: Low-risk businesses still need to comply with various regulations, though they may not be subject to as many stringent rules as high-risk businesses.
- Customer retention: Low-risk businesses may need to work harder to retain customers, particularly in industries with a high level of customer churn.
- Brand recognition: Building brand recognition can be a challenge for low-risk businesses, particularly if they operate in a crowded market or lack a unique value proposition.
- Pricing: Low-risk businesses may need to compete on price to attract customers, which can impact their profitability.
- Managing growth: As low-risk businesses grow, they may face new challenges, such as managing cash flow, scaling operations, and maintaining quality control.
Real-time payment processing systems
Real-time payment processing systems are all the rage nowadays, as they provide lightning-fast and foolproof payment processing solutions for both businesses and consumers. By enabling immediate payment processing and settlement, these systems mitigate the risk of fraud and streamline the payment process to a tee.
Components and technology behind real-time payment processing
Immediate payment platforms
Immediate payment platforms refer to payment systems that enable real-time payment processing and settlement, allowing users to send and receive payments instantly, 24/7. Centralized clearing and settlement systems mean that there is a central authority, such as a bank or financial institution, that processes and settles payments between parties. This process involves the authorization and confirmation of transactions, which can be done much faster with real-time payment platforms.
Secure data transmission and encryption
When securing data transmission and encryption, it's noteworthy to have the right tools in your financial toolbox. Fortunately, with advanced encryption standards and tokenization of sensitive data, you can stay ahead of the curve.
First and foremost, advanced encryption standards are the bread and butter of data security. With robust encryption protocols in place, you can ensure that your data is protected from prying eyes and cybercriminals. It's like having a safe deposit box for your information, making it nearly impossible for unauthorized individuals to gain access.
But encryption is just one piece of the puzzle. That's where tokenization comes in. This technique replaces sensitive data with a non-sensitive token, making it virtually useless to anyone who might intercept it. It's like exchanging your actual cash for casino chips - they may look similar, but one is significantly more valuable than the other.
Global examples of real-time payment processing systems
Real-time payment computation systems have become increasingly popular around the world, with many countries implementing their own solutions to make payments faster and more efficient. Let's take a look at some global examples of real-time payment processing systems.
SEPA Instant Credit Transfer (Europe)
In Europe, the SEPA Instant Credit Transfer (SCT Inst) system allows for immediate fund transfers across participating countries in the Single Euro Payments Area (SEPA). With SCT Inst, customers can send and receive money in real-time, 24/7, and transfers are completed within 10 seconds.
Faster Payments Service (FPS, The United Kingdom)
The United Kingdom has its own real-time payment system, called the Faster Payments Service (FPS). This system enables customers to make real-time bank-to-bank transfers, with funds typically arriving within seconds. FPS operates 24/7 and is used by most major UK banks.
Other notable systems
The United States has also implemented a real-time payment network, called RTP (Real-Time Payments). RTP is available 24/7 and allows for real-time, bank-to-bank transfers of up to $100,000 per transaction. RTP also supports invoice payments, peer-to-peer transfers, and other types of transactions.
In India, the Immediate Payment Service (IMPS) enables real-time, interbank electronic fund transfers. This system is available 24/7 and can be used for a variety of transactions, including bill payments, mobile recharges, and online purchases.
Real-time payment handling systems have revolutionized the way we make transactions, making them faster, more convenient, and more secure. As more countries continue to adopt these systems, we can expect to see even greater efficiency and convenience in the global payments landscape.
Benefits of real-time payment processing for high-risk and low-risk businesses
Time is money and every second counts. Real-time payment computation has emerged as a solution that offers a range of benefits for both high-risk and low-risk businesses. Let's take a closer look at some of the benefits of real-time payment management and why it's worth its weight in gold.
Accelerated transactions and improved cash flow
Real-time payment handling is the goose that lays the golden egg for businesses. It offers instant access to funds, enabling businesses to receive payments immediately. This can significantly improve cash flow and provide better financial planning and decision-making. By receiving payments in real-time, businesses can strike while the iron is hot, seize opportunities, and make hay while the sun shines.
Enhanced security and fraud prevention
This solution offers advanced security features that help businesses detect and prevent fraud. With real-time transaction monitoring, companies can keep their eyes peeled, catch red-handed fraudsters, and reduce opportunities for fraud and chargebacks. This ensures that companies are not caught with their pants down and customers' sensitive data is safe and sound.
Increased customer satisfaction and loyalty
Real-time payment processing is a customer magnet that attracts and retains loyal customers. It offers a faster and more convenient payment experience, meeting customer expectations for instant transactions. Customers appreciate the ability to make instant payments and are more likely to remain true-blue to a business that offers real-time payment processing. With the speed and convenience of real-time payment processing, companies can put their best foot forward, provide better customer service, and keep their customers happy as a clam.
Streamlined business operations and reduced costs
Real-time payment processing offers a simplified payment processing infrastructure, which can help businesses streamline their operations and reduce costs. With fewer manual processes involved, companies can save time and resources, eliminate the need for paper checks, and reduce administrative costs associated with payment processing.
According to Mercator Advisory Group's findings, P2P payment apps are becoming increasingly popular among consumers. Although PayPal still dominates the market, other apps are gaining impressive momentum:
- 54% of consumers used PayPal in the past year, up from 47% in 2017.
- Venmo, the second most popular app, was used by 14% of consumers in 2020.
- Zelle saw significant growth, with 13% of consumers using the service in 2020, up from a mere 1% in 2017.
Challenges and considerations in implementing real-time payment processing: Corytech’s guidance
While real-time payment processing can be a game-changer for businesses, it also brings its fair share of financial hurdles to clear. Corytech, a leading provider of payment processing solutions, provides guidance on how businesses can jump these hurdles and successfully implement real-time payment processing.
Integration with existing systems and infrastructure
One of the main financial hurdles businesses face when implementing real-time payment processing is integrating it with their existing systems and infrastructure. This can be a costly and complex undertaking, especially if the business has legacy systems that are not up to scratch. Implementing real-time payment processing also requires a significant investment of time and money, which can strain a business's cash flow.
Compliance with regulatory requirements
Another financial hurdle businesses face when implementing real-time payment processing is ensuring compliance with local and international financial regulations. Businesses must toe the line when it comes to regulations related to data privacy and security, as well as anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Failure to comply with these regulations can be a costly mistake, resulting in hefty fines and reputational damage.
Cost and scalability concerns
Implementing real-time payment processing can be a costly endeavor for businesses, requiring them to invest in new technology and infrastructure. While the long-term benefits of real-time payment processing may outweigh the costs, businesses must weigh the short-term costs with their long-term scalability needs. This requires careful financial planning and a clear understanding of the business's growth trajectory.
Maintaining security and mitigating risks
Finally, implementing real-time payment processing requires businesses to maintain high levels of security and mitigate financial risks associated with cyber threats. As cyber threats continue to evolve, businesses must stay on top of their game and invest in security measures and employee training. This can be a costly exercise for businesses that do not have dedicated IT and security teams.
Real-time payment processing FAQ
How long does a real-time payment take to reflect?
Real-time payments are designed to be instant, with funds being transferred in real-time. This means that the payment should be reflected in the recipient's account within a matter of seconds, although the exact time may vary depending on the payment provider and the recipient's bank.
Which banks accept SEPA payments?
SEPA payments are accepted by most banks in the SEPA zone, which includes 36 countries in Europe. Some of the largest banks that accept SEPA payments include Deutsche Bank, HSBC, and Barclays.
What are the different types of SEPA payments?
There are three main types of SEPA payments: SEPA Credit Transfer, SEPA Instant Credit Transfer, and SEPA Direct Debit Transfer. SEPA Credit Transfer is the most common type of SEPA payment and is used for making standard one-off payments. SEPA Instant Credit Transfer is a newer SEPA payment type that allows instant payment transfers. SEPA Direct Debit Transfer is used for making regular payments, such as utility bills or subscriptions.
The future of real-time payment processing is looking bright as emerging technologies like Artificial Intelligence and machine learning, along with Blockchain-based payment systems, are coming into play. With the right payment system, businesses can easily capitalize on these advancements. Fortunately, Corytech's innovative and fully-featured platform can help businesses hit the ground running. Whether you're a high-risk or low-risk business, Corytech can help you streamline your payment processing, reduce costs, and increase customer satisfaction.
Don't miss out on the chance to stay ahead of the curve. Take the leap with Corytech and see the difference for yourself. Request a personalized demo today to see how Corytech can help you take your business to the next level.