The adoption of real-time payments is advancing, driven by embedded payment solutions, which aim to streamline transactions and enhance consumer experience. Although the concept of instant payments has been around for nearly a decade since the launch of The Clearing House’s RTP® network, many businesses continue to grapple with the transition from traditional payment methods. As companies evaluate their payment systems, the focus is shifting from mere speed to the strategic value that real-time transactions can offer.
Transforming Payment Systems
According to Janis Wilkey, vice president of transaction banking at Priority, the groundwork for real-time payments has been successfully laid. She highlighted that effective implementation goes beyond simply increasing speed. “Slow adoption doesn’t mean it’s not worth investing in,” she explained in a recent interview. Businesses must ensure that their payment systems not only process transactions quickly but also align with their overall financial strategy.
Real-time payments require new networks, standards, compliance visibility, and evolving consumer behaviors. While many companies focus on metrics such as throughput and settlement latency, Wilkey advocates for a broader view of success. “We measure success differently,” she stated, noting that performance indicators should also include payment diversification, cost optimization, client retention, and customer satisfaction. The emphasis on relevancy could determine which companies thrive in the evolving landscape.
Wilkey drew parallels with the past, questioning whether businesses that overlooked the streaming revolution would remain relevant. “Not adopting said change could create an opportunity for you to become irrelevant to your target audience,” she warned, asserting that instant payments will soon become essential, or “table stakes,” in remaining competitive.
Overcoming Implementation Challenges
Despite a clear business case for instant payments, the path to implementation can be fraught with challenges. Many enterprise resource planning (ERP) systems, designed to serve as financial hubs, exhibit varying degrees of real-time capabilities. For companies relying on outdated software, integrating new payment methods can be a daunting task. Wilkey pointed out that basic functions, such as storing banking details or transmitting confirmations, may not be readily available in legacy systems.
The transition to real-time payments also disrupts established accounting processes, creating tension between accounts payable (AP) and accounts receivable (AR) departments. AP teams often prefer to delay outgoing payments to optimize working capital, while AR teams advocate for quicker incoming payments. “There needs to be consensus and buy-in, not just from the technical side of things but also from finance,” Wilkey emphasized.
To facilitate the adoption of real-time payments, Wilkey identified embedded payments as a pivotal solution. By automating transactions at the point of value exchange, businesses can reduce friction and enhance customer experience. This approach allows companies to modernize their payment systems without the need to implement instant payments in every scenario while ensuring they can do so when necessary.
Consumer Demand for Instant Payments
The confusion surrounding instant payments often stems from differing interpretations of the term. “Although many financial institutions claim to have an instant payment mechanism, the settlement or accessibility of those funds does not always occur simultaneously,” Wilkey explained. The gap between initiating a payment and accessing the funds can range from minutes to days, with banks sometimes providing provisional credit to mitigate delays.
Conversely, consumers have rapidly adopted instant payment solutions, driven by convenience and immediacy. “Consumers influence the way we do business,” Wilkey noted, referencing Priority’s acquisition of Sila, which underscores the importance of consumer-centric design in driving business adoption of instant payments. Sila has simplified the issuance of instant payments while ensuring compliance and scalability.
The most significant growth in instant payments is occurring within sectors where immediacy is critical, such as the gig economy. Workers in this space often expect to receive payment instantly for their services. “They like to receive payment in real time,” Wilkey said, noting that businesses should align payment characteristics with the nature of their transactions.
For example, instant payments are essential when goods or services are exchanged immediately, particularly in time-sensitive situations like insurance claims. Wilkey illustrated this point with a scenario involving a claimant needing urgent repairs after a hurricane. “You have a claimant who lost their roof in a hurricane and needs a repair on a Sunday,” she stated, highlighting the necessity of real-time payment solutions in such contexts.
As the landscape for payments continues to evolve, companies must adapt to meet consumer expectations and leverage embedded payment technologies to facilitate real-time transactions. The ability to process payments quickly and efficiently will likely define the future of financial interactions, making it imperative for businesses to stay ahead of the curve.
