Keeping up with the payments landscape is becoming a bigger challenge. Instead of just cash or credit, consumers and businesses today have more options than ever to send or receive funds, including instantly settling Real-Time Payments (RTP).
To stay competitive, businesses need a deep understanding of what RTP is, its benefits, RTP's impact on banking, and how to implement it. The road to Real-Time Payments is just beginning, making now the time to better understand how it fits into your organization.
What are Real-Time Payments (RTP) in banking?
RTP, which stands for "Real-Time Payments" is a payment rail developed by The Clearing House (TCH) that allows for real-time, 24/7 processing of electronic payments between financial institutions. RTP provides near-instantaneous settlement of funds, enabling consumers and businesses to send and receive payments quickly, securely, and conveniently.
RTP payments are generally completed within seconds, making them ideal for time-sensitive transactions, including loan disbursements or gig worker payments from apps like Lyft and Upwork. Another core benefit of RTP is its affordability. Banks charge by transaction, and RTP costs between $.01 and $2 per transfer, depending on the type of transaction. Note that this is the fee charged to banks—the fees charged to RTP users are likely marked up.
RTP is becoming an increasingly popular payment option for consumers and businesses alike. For example, insurance companies sent 20% of all payouts in 2022 via instant payment platforms like RTP. In quarter 3 of 2023, RTP processed 64 million transactions for a total of $34 billion in payments.
However, RTP payments face stiff competition from traditional ACH payments, the newer same-day ACH payments, and the recently launched FedNow program.
Note: While often used interchangeably, RTP is not an acronym for all real-time payments. Rather, RTP is a specific payment rail, Real-Time Payments (RTP) offered by The Clearing House. FedNow also powers real-time payments but is a different payment rail.
RTP credit vs debit—what's the difference?
There are two core types of payments: credit (or a push payment) and debit (a pull payment.)
Say you want to purchase a bike and need to make the payment to a bike shop. You tell your bank you want to pay (often by swiping your credit card), and your bank "pushes" your money to the store's account. That is a push or credit payment. Debit payments occur when someone comes into your account and takes the money you owe. A simple example of a debit or pull payment is setting your electric bill on auto pay—you've permitted the utility company to take money from your account every month.
Technically, RTP is credit only. If a business wants to perform a debit/pull payment via RTP, they would use a feature called Request for Payment (RfP), which is actually requesting that the payer send a credit payment.
Managing the risk of instant debit payments is challenging—you wouldn't want just anyone to come into your account and pull cash out. RTP’s RfP feature is similar to an invoice, which you can choose to pay or not. However, RfP has limitations due to increased risk and requires more information to process.
How do RTP payments compare to other payment rails?
In the payment landscape, financial institutions and consumers constantly seek faster and more efficient ways to transfer funds. So, how do RTP bank transfers compare with other payment rails?
ACH is a traditional payment rail that allows US financial institutions to transfer funds between accounts. Like RTP, ACH allows for electronic bank transfers—however, the similarities stop there. ACH is bi-directional, meaning you can use both push (credit) and pull (debit) payments. RTP payments are credit only, meaning funds are pushed from one account to another. Debits (pulls of funds) that are common for ACH bill payments can be handled through RTP’s Request for Payment functionality, although they function more like an invoice than an auto-debit.
Other differences include operating hours, cost, and availability. ACH transactions only settle during banking hours, while RTP transactions settle 24/7. Standard ACH fees are much cheaper than RTP, and ACH also has wider availability than RTP, as all US depository institutions can use ACH, compared to 65% of US demand deposit accounts (DDAs) with RTP.
Another key difference between RTP and ACH is the ability to revoke payments. ACH payments can be reversed automatically in some cases, while RTP payments cannot. Once an RTP transfer occurs, consumers or businesses have no automatic method to have those funds returned (outside of a manual request to return the money, which may or may not be honored). ACH and RTP payments can both fail. However, RTP payment failures are typically immediate, while ACH returns can take several days.
FedNow launched in the summer of 2023 and is an entirely new payment rail. While it has many similarities to RTP, it is run entirely by the US Federal Reserve. It will serve as a platform for financial institutions to build their own real-time payment solutions. Unlike ACH and RTP, it is not run by The Clearing House. Similar to RTP, FedNow will process payments in real time, 24/7.
FedNow does support requests for payments, similar to RTP. While it is growing, coverage for FedNow is lower than RTP or ACH, with just over 400 financial institutions opting into the system. However, as a newer payment rail, this will likely continue to grow.
What banks offer RTP in the United States?
Currently, more than 460 banks participate in the RTP payment system. The full list can be found on The Clearing House website. Similar to FedNow, RTP coverage is constantly growing as new financial institutions agree to participate. Currently, RTP coverage is around 70% of financial institutions and includes notable banks such as:
American National Bank
JD Bank
Bank of America
Century Bank
Navy Federal Credit Union
CitiBank
Citizens National Bank
PNC Bank
Signature Bank
Fifth Third Bank
Many local credit unions and banks also participate in RTP bank transfers, including State Bank of NW Missouri, Jacksonville Fireman Credit Union, and Indiana University Credit Union.
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4 steps to prepare your business for Real-Time Payments
Implementing Real-Time Payments (RTP) can help modernize your payment infrastructure and improve the customer experience. From understanding the use cases to managing returns, preparing your business for RTP will ensure a seamless transition. Keep in mind that you are adding RTP as a payment option, but not replacing other payment methods like ACH and cards. In fact, you may only want to offer RTP for the most popular use cases below.
1. Understand RTP use cases
RTP can currently be used in a variety of use cases, including instant payroll processing, loan disbursements, and merchant payouts. This means employees or customers can receive payments or paychecks immediately instead of waiting for several days for the funds to clear. Gig economy payments can also benefit from RTP.
Looking to the future, RTP is likely to expand into new areas, including home equity line of credit (HELOC) disbursements and merchant customer service payments. In 2021, RTP released the ability to ‘request for payments’, also called RfP. This expanded RTP’s ability to handle consumer bill pay and business-to-business (B2B) use cases but is still in its early stages. These developments will likely drive the adoption of RTP and improve the overall payment experience for consumers and businesses alike.
Watch the video below to learn how Plaid can set your business up with 24/7 instant payouts.
2. Decide if it makes sense for your business
When deciding whether RTP makes sense for your business, it's important to consider the value it can deliver—outside of pure dollars and cents. One potential benefit is improved customer satisfaction, as the ability to make and receive payments instantly enhances the customer experience. Another potential benefit is higher activation rates, as customers may be more likely to use your services if they know they can receive payments quickly. RTP may even lower customer churn rates by reducing payment friction.
Start by evaluating your current payment processes and identifying pain points. You can also look at the payment preferences of your customers and assess whether offering real-time payments would provide a competitive advantage. Consider the cost and complexity of implementing RTP as well as any potential security risks. By weighing the potential benefits and drawbacks of RTP, you can make an informed decision about whether it's the right payment solution for your customers—and your business.
3. Ensure you have fallback options
One potential challenge of RTP is that it’s covered by only about 65% of financial institutions. While this number should increase in the future, it’s important to have other payment rails to fall back on. Ideally, you can work in an automated switch to ACH for customers who’se financial institutions don’t support RTP. Transfer, Plaid’s payment processing product, has this fallback structure in place as part of its multi-rail orchestration flow.
4. Make adjustments for security
Security is crucial for Real-Time Payments (RTP) because of the immediate nature of these transactions, plus the fact that they cannot be returned. This speed also means that there is less time to identify and stop fraudulent activity, making it critical to have robust security measures in place.
RTP payment use cases
Real-time payments offer the advantage of immediate transfer, making them accessible and reducing processing times. This makes them suitable for a range of financial transactions in today's fast-paced world. Let's explore the use cases in more detail.
Instant payroll
Employers can use RTP to offer instant payroll payments to their workers, providing greater financial flexibility to workers. Imagine a retail worker who works a long week. Come payday, they don't have to wait two or three days for their paycheck to process; rather it's instantly available in their account.
Instant payouts for gig economy workers
Imagine a ride-share app driver looking to earn extra money to cover an unexpected bill or purchase presents for an upcoming holiday. They work four hours, providing a total of 15 rides. At the end of their shift, they select "Get paid now" in the app, and the funds are immediately deposited in their bank account for a small fee.
Instant loan dispersals
Another use case for RTP is loan dispersals, especially for emergencies. For example, a parent faces a large car repair bill. Without reliable transportation, they cannot get their child to school or themselves to work. They apply through a fintech lender for a $500 loan to cover the car repair cost. After verifying their identity, the loan is approved and the funds are immediately deposited in their account. The parent can pay the repair bill immediately and have their car fixed.
Refunds and warranties
Manufacturers can use RTP for refunds and warranties, especially for larger-ticket items. Imagine a person who purchases a stove for their home. After two months, the stove stops working. Rather than waiting weeks for a check or days for ACH to process, they contact the manufacturer, provide pictures of the broken stove, and immediately have money in their account to purchase a replacement.
B2B payments
Imagine a manufacturer who needs parts to build a toy. They send a request to their supplier, who delivers the parts a few days later. Upon arrival, the toy manufacturer immediately sends payment to the supplier using RTP. This saves time on processing, reduces accounting costs, and helps them build a stronger relationship with their supplier, who trusts them to pay fast.
These are just a few use cases for RTP. The speed and convenience of this payment rail are ideal for times when money needs to be transferred fast. Other use cases might include emergency fundraising following a disaster and government benefit dispersal.
Real-time payments and multi-rail strategies are the future
The increase in RTP payments in the US and the launch of Fednow are leading to a shift in the payment landscape. As the adoption of newer payment rails increases, there are likely to be even more use cases and platforms than we can currently imagine. Looking to the future, RTP is likely to expand into new areas, including home equity line of credit (HELOC) disbursements and merchant customer service payments.
There is one certainty about the future of payments—customers want more payment options. This means the future of payments is going to be faster and multi-rail.
→ Learn how Plaid Transfer can prepare you for the future of bank payments via a multi-rail (ACH, RTP, and FedNow) strategy.