5 minute read

Expectations of real-time payments are growing, can we keep up?

Wednesday, May 29, 2024

5 Minute Read

India, Brazil lead the way while the U.S. plays catchup to digital payment leaders

Part 1 of 2

Seven seconds. That’s roughly how long it can take to process a payment in real time.

With more than 70 countries worldwide having incorporated real-time payments (RTPs), the appeal of sending and receiving digital payments instantly 24/7 has caught on with many banks, businesses and consumers. This is evident by the estimated $575.1 billion real-time transaction volume by 2028.

RTPs on an international scale have come a long way since their debut in 1973 with Japan’s Zengin system. The past decade saw the most development and use of RTP systems, resulting in 195 billion RTP transactions in 2022.

The recent surge has been partly fueled by business and customer demand for immediate payments with instantaneous clearing and quicker settlement to reduce the amount of money locked in processing as well as improving cash and liquidity management.

Middle-market companies say same-day posting time (81%) and real-time settlement (77%) are critical or important features for their customers. For merchants, 61% expect RTPs to give them a competitive edge.

RTP rails offer a way to reduce the cost of moving money and can be less expensive than credit card rails. More specifically, they can help avoid late fees and overdraft fees. They can eliminate bounce backs and chargebacks for businesses because users can only send money they have in their account.

Growing investments by financial institutions (FIs) and governments in RTP solutions are expected to continue to accelerate RTP market growth. As a result, the RTP market is predicted to have a compound annual growth rate of 28.28% between 2023-30.1 And that doesn’t even take into account cloud technology.

Innovations in cloud technology enable RTP providers to scale and roll out solutions to the market with greater speed and cost efficiency. Cloud-based solutions for faster payments and the proliferation of smartphones are escalating RTP’s market. - Danielle Rigsby, VP of Product Management at TSYS, a Global Payments companyInnovations in cloud technology enable RTP providers to scale and roll out solutions to the market with greater speed and cost efficiency. Cloud-based solutions for faster payments and the proliferation of smartphones are escalating RTP’s market. - Danielle Rigsby, VP of Product Management at TSYS, a Global Payments company

RTP role models

From the UK’s Faster Payment System to Australia’s New Payments Platform, adoption of RTPs is becoming commonplace. Leading the way is India’s Unified Payments Interface (UPI) and Brazil’s Pix with nearly 100 billion combined transactions, which account for 61% collectively of those transactions worldwide.

In these regions, RTPs are overtaking card-based payments as the most popular payment method. With Pix, transactions surpassed the combined charges of credit and debit cards by roughly 23%.

Pix launched in 2020 and already has transactions nearing $400 billion every month and a user base of more than 150 million adults. From 2022 to 2023, Pix saw a 74% user surge.

India’s UPI, in comparison, was developed in 2016 and now has more than 300 million users. Real-time transactions are supported by QR codes, mobile numbers and virtual IDs (linked to a bank account).

With a 163% growth in the past five years, India is considered the leader in RTP, said Krishanu De, Senior Director, Payments, Risk & Compliance Industry Solutions, Cognizant Technology Solutions.

U.S. ranks 33rd worldwide in RTP transactions

On the opposite end of the RTP scale, the United States ranks 33rd in the world in RTP transactions per month.

It’s not for a lack of need, as 81% of Americans have sent a RTP while 77% have received one.

It’s more about the U.S. payments infrastructure. Until recently with FedNow® and The Clearing House (TCH), the closest thing to RTPs was Zelle, which ranks as the second-most common way firms send instant payments (behind push-to-card).

A new payment system means considering everything from interoperability with banks and FIs to technology costs with infrastructure.

One area driving change in the U.S. is B2B payments.

Inefficiencies with paper-based payments, especially cross-border payments, is a main reason.

RTPs have the potential to deliver not only faster payments but a better experience, among other benefits, leading to one prediction that they could replace $18.9 trillion in ACH and check-based B2B payments in the U.S. by 2028.

The preferred payment method of the next generation?

The user experience is a key focus for RTP adoption not just for the U.S., but worldwide. That’s why in many countries, including Brazil and India, efforts have been part of a broader approach to digitize the population.

In fact, there is a shift to move economies into the digital banking era with a concentration on e-commerce. Part of that movement involves the role of younger generations. It’s likely not surprising when the largest share of e-commerce shoppers in the U.S. consisted of adults ages 18 to 24 (46.9 percent).

In Europe, the potential financial benefits of instant payments are already being projected for young adults, according to one study.

Regions globally are considering RTP factors for use and adoption for younger generations. These include:

  • A digital-native upbringing.
  • A desire for convenience and mobile-centric solutions.
  • Gen Zs are found to be the most open to payment innovations, and their spending behavior shows quick and easy transactions are a preferred payment method.
  • Most Americans, particularly millennials, consider faster payment options like RTPs convenient, user-friendly and a way to help financial tracking.

Even the Indian market is looking at it from a generational standpoint. “Two-thirds of the population is under 35 years of age,” said Abhijit Singh, Chief Technology and Digital Officer, HDFC Bank.2

Putting push payments into perspective

For many years, there has been a level of comfortability with card rails in the U.S. The global increase in RTP usage shows that not only the U.S. but North America overall presents possibly the greatest untapped potential. In terms of market growth, there is a projected 2023-28 CAGR of 27.1%.

Nowhere may this be more true than when looking at the hundreds of members that signed up for the TCH’s RTP system and FedNow® in the past year.

Canada may not be far behind. Payments Canada, which oversees the country's financial infrastructure, is driving its Real-Time Rail system and plans to launch fast digital payments as soon as 2026.

“Card rails in the U.S. and Canada continue to thrive as the most widely used payment option, but the increase in real-time payment usage in other markets is a clear indicator that usage will grow here,” Rigsby said. “The momentum has swung for this alternate payment rail to be one of the emerging primary payment methods.”

Read about RTP fraud in Part 2 of our RTP 2-part blog series coming soon.

1. FICOWorld 2024, “FICO & Cognizant: Fraud-Resilient Real-Time Payment (RTP) Hubs with Multiple Clearings”
2. Abhijit Singh, Chief Technology and Digital Officer, HDFC Bank, FICOWorld 2024, General Session May 17

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