With The FedNow service finally in launch mode and the EU ready for its new instant payments regulations it’s time to take stock of real-time payments. Perhaps more than any other type of new payment technology, it must now live up to its promise. It, along with the United Kingdom’s Faster Payments Service, has been said to be “among the most important financial-services innovations in decades.” Or, at the very least, it has been called “the future of money movement.”
Time for a reality check courtesy of the 2023 Bottomline Business Payments Barometer. Real-time payments (referred to as RTP globally and used here interchangeably with the UK’s faster payments) was listed as the 6th (US) and seventh (GB) expected biggest influence over the next year, well behind access to the cloud and fraud prevention. In terms of new payment methods, real-time was added by 24% (GB) and 23% (US) companies respectively, just behind similar metrics for mobile payments. Along with other findings we will unpack a bit later, we will see that real-time payments are nearing critical mass in GB, less so in the US. The results – split across 1,600 financial decision-makers in GB and the US - have implications for companies still investigating real-time as a payment method or liquidity tool as well as for those already adopting the technology.
By the numbers, real-time payments saw an encouraging rise in both countries. In GB, where the Barometer has been taking the pulse of corporate finance leaders since 2016, the data shows a deeper trend than in the US. It indicates faster payments have had a bit of a roller coaster ride over the past four years, with 53% claiming usage in 2019, dipping down to 47% at the height of the pandemic in 2021. Now with a jump from 48% in 2022 to 55% this year, instant payments look to have a solid foundation, especially among large companies (61%) and large enterprises (56%.) Thirty-five percent of enterprise-level companies say they will adopt real-time payments over the next 12 months. If that promise holds, 91% will have instant payments in that category.
Before getting to the data in the US, it’s important to get some vocabulary settled. The data shows a very high level of adoption for real-time payments, but some caution is warranted. Since it has only been a viable payment method since 2017, it would make sense that the report would show a more gradual adoption climb compared to the 66% usage claimed in the report. As the report states, “respondents likely have in mind solutions such as same day ACH payments or wire and card payments rather than true time payment rails.” With that in mind, the jump from 60% in 2022 should be tempered by that potential change discrepancy in terminology.
The implications for these findings are split by country. To step outside of the Barometer findings for a supporting data point, according to Pay.UK the Faster Payment System broke records in 2022, processing 3.4 billion transactions valued at £2.6 trillion. This represented a volume increase of 568 million payments, or 20%, and a 24% jump in values (up from £2.1 trillion in 2021). These facts reinforce the Barometer data’s promise of 91% coverage by larger companies over the next year. By implementing a more advanced, flexible, and responsive payment infrastructure, the NPA expects to accelerate instant transactions and settlements, and in the process build in more security and reliability.
The rise of instant payments also has implications for the use of the ISO 20022 messaging format. Companies are starting to think about the required regulatory requirements that will come with the New Payments Architecture initiative, which includes sanction screening and other data that gives transparency to both sides of the transaction. ISO 20022 is designed to future-proof payment systems and ensure corporates are well-positioned to adopt new instant payment solutions and meet customer expectations. ISO also contributes to interoperability. It’s use ensures companies comply with global regulatory initiatives, such as the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) scheme in the European Union or the US FedNow service.
In the US, all eyes are on The Clearing House and FedNow. Companies who lag in implementing real-time (or faster payments as per the Federal Reserve Bank) risk an opportunity to address some of the use cases that real-time facilitates. Although the potential discrepancy in terminology made surveying the use cases in the US hard to measure, we can see some of them take hold in GB, where businesses are increasingly using real-time payments to address core repeat processes, with the majority using it for paying regular supplier invoices (now the most common use case), internal expense claims and taxes.
Bottomline has seen similar use cases and features that make them feasible. First, businesses can use RTP to pay their suppliers or vendors immediately, improving cash flow management. We’ve also seen interest in the gig economy, where workers can be paid immediately after completing a job rather than waiting for the traditional weekly or monthly pay cycle. This use cases also relates to on-demand payroll, which is another use case. We’ve also heard a lot about the extensive remittance data to be attached to the payment transaction. This additional information could include invoice numbers, purchase order numbers, or other details related to the transaction. Having this data directly linked to the payment dramatically simplifies the reconciliation process, as it reduces the time and effort needed to match payments to corresponding invoices.
The Bottom Line: Real-time payments have a tremendous upside, which is reflected in the report, especially in GB. No surprise then that barriers to instant payments dropped substantially there but were essentially flat in the US. The most concerning data point in the US was the 29% of respondents that were unsure of the benefits and, to a lesser extent, 23% who didn't have a need for them. Barriers to instant payments in the UK or also changing rapidly. In 2020 37% said they had no need for them, but that dropped to 24% in 2021, 20% in 2022 dipped to 17% this year. These stats and use cases indicate the future is undoubtedly bright for real-time payments in both countries, with a more mature attitude and usage found in GB.