Real-Time Payments Move Money Faster and More Efficiently

More than 40 years ago, the automated clearing house (ACH) network offered an electronic and speedier alternative to checks for sending and receiving payments. The ACH remains one of the most trusted U.S. payment systems for sending and receiving high-volume transactions securely, efficiently and cost-effectively.

Digital commerce raised the bar for shopping and methods of payment. Consumers and businesses expect an easy, seamless experience. The payments industry is responding with significant technology investments to continuously transform when, where and how payments are made.

What are the main payment rails? Three have emerged in global commerce: blockchain, real-time payments via The Clearing House’s RTP® Network and FedNow®. Each has unique features and applications that could change the way consumers and businesses interact.

Businesses need faster payment solutions.

"While traditional methods like cash, checks and cards are still used, the desire for flexibility and speed is driving an increasing demand for simplified, transparent and speedier payments," says Laura McGortey, Synovus commercial payments and fraud mitigation product group manager. "Not only do these emerging payment rails facilitate around-the-clock commerce, but they do so quickly, giving each method the potential to disrupt and transform multiple industries."

Traditional payment methods come with several limitations to speed and efficiency that can negatively impact your business and customers. For example, business credit card payments and checks usually take a few days to clear, while cash requires in-person meetings and increases the risk of theft. When many transactions are in motion, a few days could be the difference between having the funds and overdrawing an account or submitting a failed payment. Both could result in fees or damage to your relationships with vendors or suppliers.

In the long term, slow payments can result in inefficient business practices. Your decision-making becomes hampered if you're constantly waiting for transactions to clear. And you can't get a complete financial picture at any given time.

These problems can affect you, suppliers, employees and customers. That’s why faster, more efficient options are needed.

Blockchain payments are transparent and secure.

Blockchain was designed as a public database to record transactions of cryptocurrency, such as bitcoin. Each transaction between two parties is added as a "block" to the digital chain and stored as a massive digital ledger. With its inherent transparency, security and flexibility, consumers and businesses are increasingly interested in crypto as a means for lending and payments.

"As the movement continues toward digital assets and putting them on public blockchains with irrefutable records of ownership and value, as well as blockchain-based security, the banking industry will follow," said Zack Bishop, executive vice president of technology, operations and security at Synovus.

Blockchain offers some unique benefits.

• Near real-time settlement:

  There is no intermediary in the payment process, so the transaction can be settled quickly. However, transaction confirmation times can also vary depending on the cryptocurrency used, and transactions that take place during the peak transaction period take longer to settle.



• Encrypted security:

  A hacker would have to alter every data point stored on every node in the network to gain access, a virtually impossible task.



• Irrevocable:

  Once transaction details have been entered on the chain, they can't be changed or altered. Consequently, there is no recourse for fraudulent transactions, and transactions aren't insured by the FDIC.



• Decentralization:

  Unlike most centralized records, a blockchain ledger lives as copies on numerous "nodes" or computers. Entries are validated and updated in the ledger of each computer on the network simultaneously.



• Ideal for cross-border payments:

  Some international business payments can get complex since they often involve banks from different countries, each with its own operating laws and authorities. Blockchain's decentralized network eliminates the need to go through multiple parties to process payments and remittances. Over 37% of businesses already use blockchain and cryptocurrencies for cross-border transactions.1

Although blockchain payments offer a unique, secure and permanent approach, they represent an easily disrupted technology. Performing blockchain payments correctly requires some technical skill, and they may not be as commonly accepted as other payment methods. Plus, cryptocurrencies are less stable than other currencies and may create some risk.

RTP enables rapid, just-in-time settlement.

The Clearing House's RTP Network is the first new payment rail in the United States in over four decades. RTP facilitates what appears to be a direct digital connection between two bank accounts to process electronic payments. However, the flow is more like a traditional interbank settlement with real-time connectivity, which is a much faster experience than other interbank settlements like ACH.

From an internet-connected device, a payer instructs their bank to transfer funds from their account into a payee's account. The payee's bank receives the funds and accepts the payment directly into the account. The transaction is settled and confirmed to both parties within seconds, 24 hours a day, 365 days a year.

RTP combines several digitally inherent features

• Just-in-time settlement:

  Fast, irrevocable payment facilitates just-in-time settlement that can be used for everything from businesses paying suppliers and employees to consumers paying household bills.



• Rich remittance data:

  While RTP is a highly efficient payments system, it was built first as a messaging system. Each real-time payment can be accompanied by valuable transaction data and information for easier payment reconciliation.



• Push-payment system:

  Unlike direct debit, the RTP system allows a biller to request funds from customers or B2B parties. This helps eliminate the insufficient funds risk associated with other methods like ACH, streamlines the biller's reconcilement processing and speeds the clearing of accounts receivable, which can come in handy for B2B payments to key suppliers or when paying late utility bills.



• Irrevocable:

  Like blockchain technology, RTP transactions can't be reversed once settled. This feature speeds up accounts receivable processing with payee confirmation that the obligation is fully settled.



• Account-to-account transfers:

  Funds are not held in a digital wallet (i.e., PayPal, Venmo) from which they must be moved to a bank account. Instead, payees receive the funds directly to their bank account.

Settlement on rails other than RTP can take days, creating cash flow challenges for some businesses. Real-time payments can help ease cash flow gaps with shorter settlement times.

"With RTP, the payer is in complete control of the timing and value of the payment, which is quite beneficial when compared to other 'push pay' solutions that leave payers wondering exactly when their account will be debited," says McGortey. "No one likes surprises when it comes to their personal or business account balances."

The combination of real-time initiation, settlement and comprehensive data enables businesses to integrate financial transactions with current processes and systems to potentially eliminate after-the-fact reconciliations.

For example, with RTP, when a biller (payee) requests funds from a payer (consumer or business), a detailed copy of the invoice or statement can be included directly with the payment request. The biller has full transparency into the payment request status, and the payer has full view of the reason for the payment request. When the payer pushes the funds in real time to the biller, the data flowing with the transaction allows the biller to reconcile the bank account to accounts receivable immediately.

While almost any business can benefit from RTP's speed, some particularly relevant use cases include:

• Car dealerships and mortgage lenders can complete payments before closing on deals.
• Personal loan issuers can use RTP to help consumers get funds quickly in emergencies.
• Businesses can pay employees via RTP to streamline payroll and give employees faster, convenient access to funds.

RTP regulation is still evolving.

As RTP grows in popularity, some countries have implemented new legislation. For example, the United Kingdom's Payment Systems Regulator (PSR) announced consumer protections and standards. These include requiring sending and receiving firms to evenly split the costs of fraud reimbursement.2 Such regulations could drive industry adoption of more security tools like invoice verification to prevent fraud.

Currently, many RTP systems use guidelines from the International Organization for Standardization (ISO) 20022 for two-way messaging. This approach outlines the technological foundation for various features and supports interoperability between RTP systems.

FedNow expands real-time payment offerings.

FedNow, a program similar to RTP, launched in July 2023. It is backed by the Federal Reserve and incorporates clearing and payment settlement services for financial institutions of all sizes. FedNow benefits banks that want options for processing RTP and, similarly, offers two central clearing options. The option the bank chooses is seamless to the customer. Like the RTP Network, FedNow processes and settles payments within seconds.

FedNow could represent a big leap forward for the U.S. payments ecosystem. It offers a few additional features, like Liquidity Management Transfers (LMTs), and has official backing from the Federal Reserve which makes it easy for financial institutions to join. FedNow should increase the popularity of instant payments within the U.S. and facilitate easier, faster payments for businesses, banks and consumers.

Switching to real-time payment solutions will likely change many aspects of operations, which currently center around slower payment rails. Since payments are irrevocable, organizations may need more validation processes to ensure transaction accuracy. Your fraud prevention practices may also need updating.

However, real-time-payments’ flexibility and the rich information it provides will enable businesses to revamp a host of internal processes. Many can significantly reduce cash and checks for added security and speed, while real-time funding can drastically improve cash flow and efficiency. An agile environment that facilitates innovation and more competitiveness in a global market is another advantage.

Choose the right payment options for your business.

Your choice of payment rail must fit your organization's unique needs and circumstances. These steps will help evaluate your options.

1. Assess the solution’s costs.
   ACH and RTP transactions are usually comparable in price, while wire transfers and credit cards can get expensive. Consider whether you would pay a flat fee or a percentage, as well as how many transactions you would perform on average.


2. Determine the processing speed you need.
   If you want immediate payments, choose RTP, which is essentially available around the clock. Some blockchain solutions take a few hours to process.


3. Confirm availability.
   Not all banks have RTP capabilities yet, and not all businesses accept cryptocurrency. Make sure your chosen solution is truly accessible to your business.

Consumer demand and emerging technologies are paving the way to evolving payment methods. To see how we can help you deliver the shopping experience your customers expect, simply complete a form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.