Even as real-time payments systems are proliferating around the globe, real time can mean many different things with vastly different implications to users of the system. The paper provides clarity on what a real-time payment is by exploring what real time means, outlining the challenges to implementing real time, and identifying major use cases and user impact.
The Electronic Payments Association released Payments Innovation Alliance released a white paper, “Real Time in Real Life: The Impact of a Real-Time Payments System on Its Users.”
Payments system modernization efforts are becoming increasingly common across geographies and these efforts are leading to interest in, development of, and increasing utilization of real-time, low-value payments systems. Consumer and business expectations and demand for speed in payments, coupled with evolving payment types, have highlighted a need for faster options for multiple use cases. However, as industry professionals address real-time payments, it is evident that “real time” can mean many different things, with vastly different implications to users of the system. NACHA’s Payments Innovation Alliance recognizes that, as an industry, we need to further explore and fully understand what a real-time system would mean from an end-to-end perspective.
A real-time payments system is a synchronous messaging system with request and response capabilities that operates between financial institutions, third parties, gateways and directly connected businesses in real time. Prior to the initiation of payment instructions to the receiver’s financial institution or third party, good funds are confirmed, and with this certainty of settlement, there is immediate debiting and crediting of the sender’s and receiver’s accounts at their respective financial institution/third party. A proxy database that allows users to make a real-time payment without the sender or receiver knowing the other’s banking information is assumed, as is the ability to send or receive payments 24/7.
Some real-time infrastructures institute a system-wide value limit for individual transactions to reduce the risk associated with putting high-value transactions in a system that does not settle in real time. Other real-time systems see individual financial institutions/third parties setting maximum transaction values for their customers. While the onus for fraud screening typically falls on individual financial institutions (regardless of payment type), implementing a centralized fraud screening capability at the infrastructure operator level could help identify patterns of fraudulent transactions across multiple financial institutions.
The paper was released as part of the Payments Innovation Alliance’s Members Meeting, which is going on now through Oct. 1 in Miami. The Members Meeting features discussion of a variety of payments-related topics, including sessions dedicated to real-time and faster payments initiatives such as Same Day ACH. Same Day ACH, a new amendment to the NACHA Operating Rules that will move payments faster on the ACH Network, can serve as complementary functionality to any real-time payments system that is implemented in the U.S.
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