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Real-time payment (RTP)

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What is a real-time payment?

A real-time payment (RTP) is a payment service that clears payments instantly regardless of the day or time. Traditional payments take up to several hours or days to clear, while an RTP service clears them immediately, even over a holiday. As a result, these real-time payment networks, also called instant payments or faster payments, create more transparency for the beneficiary and save time for consumers and businesses.

How do real-time payments work?

A real-time payment is initiated by the payer. Once initiated, the payer’s bank verifies their identity through their customer authentication measures, such as passwords, multi-factor authentication or biometrics. The bank then verifies that the funds are available through its authorization process. If the payment is approved, the bank authorizes the transaction. Next, the payment goes through the RTP system, and the transaction is processed individually, rather than in a batch.

Once processed, the payer and payee receive a notification via an SMS or push notification, for instance. Finally, the payer’s bank settles or pays out the amount to the payee’s bank and the funds are available immediately in their account.

What are the benefits of RTP?

Real-time payments are instant, and the service is available 24/7, which makes them a convenient payment method for consumers and businesses. With no delays or disruptions to payments, faster payments provide a good customer experience. Without the payment delays that regular payments are subject to, real-time payments also make it easier for businesses to manage their cash flow.

What’s the difference between real-time payments and instant payments?

The terms real-time payments and instant payments are often used interchangeably. This is because they refer to the same type of payment, one that clears immediately and is irrevocable. Real-time payments are a type of instant payment that goes through a real-time payment system, like the RTP platform in the U.S., developed by The Clearing House. Similarly, the United States Federal Reserve Bank recently launched their FedNow service, another instant payments service for American banking customers.

How can banks protect their customers from real-time payment fraud?

While a RTP has many pros, the downside is that instant payments can be a bigger fraud risk because the payment is instant and irreversible. To protect customers from RTP fraud, and the costs of reimbursing victims, financial institutions should ensure they utilize multi-factor authentication measures to help spot fraudsters. Authentication measures, like a push notification with all the transaction details, can help to double check whether a customer is sure they want to proceed with an instant payment.

Utilizing a real-time fraud risk engine can also ensure that the bank has sufficient context about the customer and transaction to handle suspicious transactions quickly and stop potential RTP fraud.

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Keywords:

Real-time payment | Instant payment | Payment authentication
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