Orum is part of the fintech space—but consider for a moment the consumer tech world, which is famously fast-evolving.
Remembering that first PC with a giant tower on the floor, or the old clunky phones now shoved in the back of the drawer, feels rather quaint when compared with the advanced computers we casually carry around in our pockets in the form of smartphones today.
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At Orum, we’re proud to be part of the money movement pushing financial tech forward. And in this space, just like with consumer gadgets of days gone by, some payment rails feel less efficient or even obsolete as new technologies offer a better and faster experience.
In this analogy, real time payments, or RTP, is the modern smartphone and push to card payments, or P2C, is that old PC tower that you were happy to get rid of.
What is RTP?
Real time payments (a.k.a RTP or The RTP Network) was introduced by The Clearing House in 2017. RTP was the first instant payment architecture introduced in the U.S.
The network radically modernized payments overnight. RTP processes domestic payments 24/7/365 with no interruptions (even on weekends and bank holidays), with immediate settlement and instant availability of funds.
That’s a huge difference from other rails like ACH and Push payments, in which payments are cleared in batches and they settle only after the payments clear—plus, those rails operate only during standard banking hours.
Beyond the benefit of an instant experience for your customers, who can access their funds within seconds, other advantages of using RTP include: a fixed cost per transaction, the ability to send data like invoice information along with the payment, and the flexibility in requiring minimal Personal Identifiable Information (PII).
How do real-time payments work?
To use RTP, customers need to have an account at a bank or other financial institution that’s part of the RTP network. Financial institutions have to opt in to do that, but most customers have access: The Clearing House estimates that RTP is accessible to institutions that hold about 90% of U.S. demand deposit accounts (DDAs).
When accessing RTP through solutions like Orum’s simple API, the process is seamless and super-fast for customers. The sender of the payment initiates the transaction (as a credit push), and the RTP network processes each payment individually, in real time—no batching and waiting for clearance.
To facilitate that instant processing and settlement, the RTP network requires participating funding institutions to hold a separate, pooled account for liquidity purposes at The Clearing House. That way, interbank settlement happens immediately, even before the receiving bank confirms details of the recipient’s account.
The receiver of the funds gets access to them within seconds. Additionally, the RTP network sends both the sender and receiver of a transaction a payment status update instantly to confirm success and the amount paid.
RTP vs. Push to Card (P2C) Payments
Compare RTP to Push to Card payments, and it’s clear why RTP will be the preferred, fastest, and safest way to move money going forward—and why P2C is on the way out.
Speed and cash flow control
Because RTP payments are processed and settled instantly, you receive access to your funds within seconds. Payments are also processed at any time, 24/7/365.
By contrast, P2C payments are not settled instantly. Just like with ACH, paper checks, and wires, the card rail system batches many payments together to clear and settle them at a later time. Plus, these settlements happen only during regular banking days and business hours. All of that adds up to delayed access to funds.
That delay isn’t ideal for the receiver of the funds, or for managing cash flow. With RTP a business can receive money from customers on the weekends, at night, and even on banking holidays—giving you a far greater understanding of cash flow and more control over your finances.
Cost
RTP is a significantly more cost-effective way to send and receive instant payments compared to P2C.
RTP through Orum is a simple flat fee per transaction, while card rail vendors use a more complicated pricing structure by charging basis points. RTP is near-instant by its nature; card rails can deliver that experience, but only at a significant cost. For example, companies that use card rails may lose up to $30,000 in fees for every $1 million they make in sales.
It’s clear: If you supplemented even a small portion of your instant transactions with RTP each year, you’d increase your margin and reduce costs.
Security
When a company uses card rails, often its customers must provide sensitive information like their Social Security number or Taxpayer Identification Number. Many individuals and businesses are reluctant to share this PII, especially online.
That’s not always necessary with Orum’s RTP solution — allowing you to remove friction from the onboarding process and create a better experience for your users.
With Orum, customers often need only to provide first and last name (or if you’re a business, just the company’s legal name). Even better: You’re not sacrificing any security or reliability. RTP adheres to Know Your Customer rules to ensure the security of transactions are secure.
By contrast, with card rails you’ll have to implement a payment card industry (PCI) compliance program. This mandatory step adds cost, complexity, and significant time to the process.
Additional data capacity
What additional information can you send along with the payment for each of these rails?
For card rails that’s a short, simplistic answer. Transactions contain only the most basic, necessary information: the payment amount and who’s receiving it.
RTP offers far more. The network uses the data-rich ISO 20022 messaging standard for payments, which unlocks the ability to include additional information: details about a payment’s source and purpose to make reconciling invoices much easier, the reason a payment was denied, and more.
Additionally, RTP automatically sends confirmation messages to both the sending and receiving parties once the transaction is complete. That’s not possible with card rails.
Orum provides an easy-to-implement solution for our customers to quickly access instant payouts through a number of major payment rails including ACH, Same-Day ACH, Wires, and (coming soon) FedNow.
But as you can see, we’re particularly passionate about RTP and all the benefits it offers. We’re not the only ones.
The growth of RTP in the financial landscape
Since launching in November 2017, RTP’s growth has been the quintessential hockey stick. As of November 2022, RTP volumes had jumped by double digits quarter-over-quarter for 16 straight quarters, The Clearing House said in a release celebrating the network’s fifth anniversary.
In the first quarter of 2023 alone, the RTP network processed 52 million transactions worth $25 billion. Given consumer and labor trends, this rapid growth isn’t surprising.
Consumerization of payments
With the press of a button on their phones, customers can instantly order food and ride-sharing services directly to their doors; they expect a similar instant experience with services across the board, including payments. The slow pace of card rails — batching payments, clearing them when a batch is big enough, and settling them sometimes days later — just doesn’t fit anymore with the way people live the rest of their lives.
Nearly 80% of consumers are interested in faster ways to pay businesses, according to a Federal Reserve survey released in May 2022. About 62% of those surveyed said they expect to use faster payment options more extensively in the future, especially those that offer robust fraud protection.
Demand for real-time payments “intensified in the wake of the COVID-19 pandemic,” wrote the Fed, and with digital-native generations starting to become heads of households or enter the workforce these trends are likely to accelerate.
The gig economy and immediate access to wages
Decades ago, earning money may have meant working for paper checks cut every two weeks and retiring with a gold watch from your employer of 40 years. Work could hardly be more different now.
“One of the most significant drivers of the growth of RTP volume is earned wage access,” according to The Clearing House. EWA lets workers opt for near-immediate access to their earned wages when they need them, rather than waiting for a biweekly paycheck.
That’s an attractive prospect for workers looking to reduce financial-planning stress — making earned wage access through RTP a tool for companies looking to hire, retain, and ensure the satisfaction of their workforces.
Another labor trend boosting RTP’s popularity is the proliferation of side hustles and full-time work within the gig economy. More than one third of employed workers in a 2022 McKinsey survey identify as independent workers, which translates to 58 million Americans when extrapolated from the representative sample.
These project- and gig-based workers don’t want to wait for their wages, either: One study showed about 70% of gig workers said they are more likely to work for a gig platform that offers them near-instant pay.
Here again, the slowness of card rails — plus the lack of movement at night, during weekends, and on bank holidays — no longer matches what the modern worker wants and needs. They expect 24/7/365 access to many things, and payments and wages are no different. If they can’t get it with one company, they’ll find it elsewhere.
What’s next for RTP?
Because of the confluence of trends we’ve discussed and the advancement of payments technology, real-time payments are growing in popularity across the globe. According to FICO’s April 2023 survey of consumers in 14 countries, 90% of respondents have sent a real-time payment. At least 95% of consumers have used real-time payments in India, Indonesia, the Philippines, and Brazil.
Services will only continue to improve. In the case of the RTP Network specifically, since launching it in late 2017 The Clearing House has added several features to make the network even better. A few of the more recent updates include:
- Expanded Request for Payment capability: RfP now allows customers (like a biller) to request a payment from other users.
- Document Exchange: Access documents like bills, invoices, and remittances in the same transaction flow with the payment or RfP. Both PDF or XML documents are supported.
- Tokenization: RTP account security was enhanced with tokens that protect sensitive deposit and checking account credentials used to request or make payments, reducing the likelihood of theft and fraud.
- Higher transaction limit: The Clearing House raised the RTP per-transaction limit to $1 million, making it easier to use for higher-value case cases like real estate closings, commercial loans, merchant settlement, and corporate supplier payments.
The Clearing House plans to continue rolling out new features and expanded technical access as the RTP Network matures.
Launch of FedNow
Outside of the RTP Network, there’s big news coming in the real-time payments space: the planned July launch of FedNow, an instant payment platform designed to safely and efficiently provide access to funds in real time, 24/7/365.
New rails don’t pop up often. In fact, FedNow will be the first major payment rail to launch since RTP debuted in 2017.
Announced in 2019 and built by the U.S. central bank, FedNow is a significant expansion of the US payments infrastructure. It’s built on ISO 200022 standards, which focus on improving the interoperability and transparency of money movement.
FedNow will settle and clear online payments 24/7/365 including nights, weekends, and all holidays. The banks on both sides of the transaction instantly exchange the necessary information to immediately move the money between customer accounts, and interbank settlement happens after the receiving bank has confirmed the recipient’s account information.
The service guarantees the recipient will have access to the funds within 20 seconds, and often much faster. Once the transaction is completed. Both the sender and receiver are notified whether the payment was successful.
Orum is one of the select launch partners for FedNow, and we’re excited to help financial institutions of all sizes seamlessly integrate the FedNow service.
FedNow does share similarities with RTP: instant payments processing 24/7/365, irrevocable settlement, access for customers with accounts at institutions that have opted in, and confirmation of transactions for both senders and recipients.
But there will be a few key differences. One is transaction limits: RTP offers transactions up to $1 million, and at FedNow, the default limit will be $100,000 with financial institutions having the ability to request up to $500,000..
The other core difference is access: With RTP, The Clearing House estimates it’s accessible to institutions that hold about 90% of U.S. demand deposit accounts (DDAs). However, RTP currently reaches only 62% of DDAs as not all financial institutions with the access have chosen to opt in. The thousands of institutions currently integrated with RTP are listed on The Clearing House’s website, and some customers may find their local community banks have not opted into the network.
FedNow has the benefit of being backed by the central bank, so it inherently is linked to the Federal Reserve’s larger network. That means it will be more accessible to smaller local banks in communities across the U.S.
Orum’s Real-time Payment Processing Solutions
At Orum, our mission is to help move money efficiently and securely in the way you need it at any given time. That’s why we offer access to several major payment rails like ACH, Same Day ACH, and Wires in addition to RTP and soon FedNow.
But it’s clear that solutions like card rails are on the way out. They were designed in and for another time, when instant payouts were merely a dream of the future.
That future is here, and real-time payments are the modern solution. Consumers have on-demand access to nearly everything now, and that very much includes payments. Workers, too, are increasingly taking on gig-based work and seeking immediate access to the funds they’ve earned rather than wait two weeks for a paycheck.
These trends will only accelerate as Gen Z and younger generations who have grown up as digital natives continue to enter the workforce and start to become heads of households. Real-time payments will become not merely a benefit, but an expectation.
Each payment rail offers different benefits, and we recognize that the rail that is most efficient and cost effective for your needs may vary by use case or over time. That’s why Orum’s simple API integration connects you to a platform that is highly orchestrated to automatically ensure your customer’s payment gets from Point A to Point B as quickly and efficiently as possible. Our platform automatically considers details like the size of the transfer, the time of day, the day of the week, and the credentials on file so the payment takes the most efficient path available.
We’ll have you set up in two weeks or less, without costly bank integrations or prolonged compliance. Ready to move? Let’s talk. Get in touch with Orum today.