Real-Time Payments: Is Your Business Ready?

The world is speeding up, not slowing down. Today, markets and people expect their technology to respond in real time. Real-Time Payments (RTPs) bring instantaneous interactions to the world of money transfers. While money transfers used to be slow and insecure, RTPs safely and quickly process transactions. The fintech and banking industries have quickly adopted the technology, bringing new opportunities for innovation, growth and customer experience to money transfers.
8 min read
30/10/20
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By Alexander Binevskiy
Senior Developer at DataArt
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Real-Time Payments: Is Your Business Ready?

While some companies approach RTP adoption with enthusiasm, most financial institutions are reluctant to make any changes. According to The Faster Payments Council, nearly 60% of companies surveyed believe U.S. companies have not made enough progress toward adopting faster payments. The same study also found that a lack of common standards, low readiness to manage risks, and a low utilization ratio are major pinch points for adopting faster payments.

Statistics on adoption of faster payments

Fast payment adoption is complex, but it is far from hopeless. Let’s unravel the topic and understand what RTPs are all about. We will also look at common concerns and identify the steps your company needs to take to prepare for faster payments.

Getting to Know Real-Time Payments

What are fast payments and how fast are they, really? Real-time payments are irrevocable money transfers that happen within seconds and are followed by an immediate confirmation. Transactions can be processed 24/7, eliminating the reliance on a physical bank’s hours. RTPs also eliminate the need to disclose sensitive bank details because money can be sent to an email or phone number associated with the account.

Fast payment technology has a number of benefits and uses. In addition to the obvious advantages — speed, accessibility, and around-the-clock availability — real-time payments are extremely versatile and beneficial for both personal and business money transfers. In Sweden, people use RTPs to buy their morning cinnamon buns and coffee, the British use real-time payments to pay their bills, and Brazilian businesses pay their suppliers quickly using RTPs.

C2C fast payments are on the rise in the United States, too, moving slowly but steadily toward changing the payment landscape for good. Take Venmo — they offer so-called instant transfers that come in handy, for example, when friends want to split a restaurant bill or when roommates have to chip in to pay the rent. This is a convenient cashless way to send money, and many will eventually follow in Venmo’s footsteps.

It is not hard to imagine a future where all payments are standardized and completed within seconds. The earliest adopters will be the ones at the forefront of this new wave of payment processing.

Fast Payments for Businesses: Early Adopters and Timeframe

The B2B segment has been the most eager to jump on the bandwagon and fully experience the benefits of RTPs. Timely payments to suppliers can significantly accelerate production processes and delivery. They also build trust between partners and can simplify the budgeting process. With RTPs, there is no need to wait several days for a payment to reach the recipient, and payers retain control over their funds.

Moreover, this new money transfer model offers financial institutions an array of competitive advantages over those who still rely on outdated payment systems. Forward-thinking banks are more likely to achieve revenue growth by engaging new customer segments and stimulating customer spending. Faster payments also reduce operational costs — focusing on a single system can help businesses save on maintenance, updates, and testing. And let’s not forget the lower risk of fraud: so-called “push” transactions, where the payers themselves authorize the transaction from their account, can help increase safety. Introducing this innovative payment method will help your company retain clients and encourage positive long-term customer relationships by making processes more casual and safer.

When adopting fast payments, most changes will affect the bigger players — financial institutions, securities, insurance, and trade. Stock markets, payment, and card systems will need to adapt to the new standards, as well. However, the main actors will be banks as they are responsible for the transfer itself.

A strong system will adhere to rigorous standards. Organizations like Ripple, Financial Information eXchange, ISITC, SWIFT, Visa, and more are working on ISO 20022, a financial messaging standard for seamless payment automation. According to Finextra, the adoption of ISO20022 will proceed in three stages:

  • November 2021: ISO 20022 messages to go live on Swift.
  • Between 2021 and 2025: A four-year ‘coexistence period’ between ISO 20022 and legacy Swift MT standards.
  • The U.K. and U.S. are expected to adopt the ISO 20022 standard in 2022 and 2023, respectively.

Financial institutions should adopt the new standard as soon as they can. Using ISO 20022 will let your company replace outdated protocols and modernize its payment system. Standardizing technical interfaces and message formats based on the new protocols will save time and effort when it comes to partner integration and application support. Unlike previous protocols like SWIFT MT101 / MT103, the ISO 20022 payment protocol offers the ability to identify all payment participants in a structured form. This significantly reduces the risks of refusals and delays in making payments and helps eliminate human error.

With that in mind, it is time to consider whether your company is ready to adapt to instant payments.

Preparing for the Big Change

Companies working with any kind of money transfers are under pressure to transition to the new payment system. This will require three main steps:

1. Building the Right Technology

Transitioning begins with building a base for new technology that can completely replace existing legacy infrastructure, which is often outdated. If you do not replace these legacy systems, your company could face backlogs and errors, not to mention an inability to meet customer demand.

This process requires integrating the new technology with your other systems, testing those integrations, and deploying the new technology. These new systems should be constantly monitored and subject to real-time situational analysis to ensure they are both dynamic and adaptive. Institutions can make use of their own resources or, better yet, find a trusted partner that can deliver the most cutting-edge architecture while keeping up with timeframes and staying on budget.

2. Assuring Top-Notch Quality

Since payment systems are extremely complex, they require constant testing — the more complicated the system, the more deficient it tends to be. You should implement quality assurance testing that constantly evaluates all functions and system capacities. It is a monotonous repetitive task that takes into account cryptography, transactional data, industry specifics, and virtualization. Because these are monotonous tasks, when performed manually, quality assurance is prone to human error.

Automated testing is the answer. It is fast, and it can deal with tasks of any complexity. By incorporating QA into your company’s tech production process from the very beginning, you can avoid common errors and ensure your software runs smoothly. Though it may cost extra, QA will eliminate money and reputation loss for years to come.

Infographics about Security testing

3. Implementing Fraud Prevention

As technology develops, fraudsters are advancing their skills accordingly. Therefore, when working with real-time payments, it is important to keep an eye out for suspicious activity. While RTPs are less prone to fraud than traditional payment systems, they aren’t fully breach-proof.

Statistics about Fraud in Payments

Unlike traditional payment systems, the risk is not in the transaction itself. Rather, dangers in RTPs emerge during user authentication. This is nothing new — cyber-criminals have been stealing personal information for decades. They can then use these stolen identities to open new accounts or take control of existing ones in order to transfer money using RTPs. Companies that employ artificial intelligence and machine learning to detect fraud have an upper hand. A well thought out fraud prevention system can protect transaction integrity and keep sensitive data safe from third-party vendors. In short, it is a real-time solution for maintaining a real-time system.

DataArt has significant experience working with fintech companies, and modernization is key to all our work. We have built numerous bespoke solutions to help companies with real-time payment integration. The key to our success is data science and our expertise in AI/ML. Our real-time system ranks suspicious transactions automatically, bringing the most notable ones to the top of the list. The system has the capability to search through tens of thousands of transactions per day. We also specialize in system error, security and other types of testing and have performed quality assurance for many clients. Our QA engineers are integrated into all project stages, from planning to execution. They ensure that system performance corresponds with all requirements. Our approach also centers system functionality, which in turn helps prevent downtime and fraud.

Conclusion

The finance industry is sure to see unprecedented changes once real-time payments are fully implemented. As more and more countries adopt RTPs, the era of secure and convenient instant payments grows closer every day.

Real-time Payments BIF

It takes enthusiasm and preparation to become part of this global system. But once it gains momentum, both businesses and private individuals will experience money transfers on a whole new level. Remember: the early bird gets the worm, and there is no time to waste. The faster your company adopts RTPs, the faster it can take advantage of its forward-thinking approach to dominate the market.

If you are confused about where to start, contact DataArt. We have been working in fintech for years and have what it takes to create a custom solution for your business.

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