Faster payments doesn’t mean real-time payments

The term “faster payments” is popping up more frequently – not just in payments-specific trade publications, but in the mainstream media as well – as discussions focus on the need to send money to consumers and businesses directly, accurately and quickly in the digital age. Frequently, this term is used interchangeably with “real-time payments” or “immediate payments.” However, there are not-so-subtle differences between these terms and the payment systems they represent, which are important when it comes to credit union members receiving and spending money in their accounts, as well as how much it costs the member to send a payment and the potential for fraud.

Some payment forms that look like they take place in real-time are not always what they appear. Here are some basic guidelines for real-time and faster payments terminology:

  • Real-time payments (RTP) has a very specific meaning. Some of the words associated with real-time payments are “finality,” “irrevocable” and “milliseconds.” The settlement of a real-time payment transaction (moving the money from the sender’s account to the recipient’s account) happens at the same time as the payment authorization. Both occur within milliseconds after the payment is approved. The payment then cannot be stopped or reversed once it’s approved. The Clearing House’s RTP network, as well as the Federal Reserve Board’s FedNow, closely mirror the RTP definition. One use case for RTP is to replace wire transfers for big purchases such as a car or boat – however, RTP has a maximum of $100,000 which limits its applicability for real estate closings. Other uses include paying a gig economy worker (e.g. an Uber Eats delivery driver) at the end of their shift, or a B2B transaction for supplies and services.

 

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