Real-Time Payments Have Numerous Real-World Applications
Updated: Nov 13
Everyone seems to want faster payments — from gig workers to B2B suppliers to parents splitting expenses — but with not all major financial institutions on board, real-time payments stand at lower chance for mass adoption.
According to an earlier Faster Payments Tracker, it was projected that more than 56 real-time payment rails will be live by 2020. The demand for faster payments is strong in the U.S., but not all financial players agree on how to achieve it, especially within that timeframe.
The Clearing House, a banking association, launched its Real-Time Payments (RTP) network in November 2017. According to the organization, the RTP network currently reaches over 50 percent of U.S. transaction accounts.
Adoption depends greatly on partnerships to make RTP more accessible. Earlier this month, payment company PayFi and The Clearing House (TCH) partnered to bring real-time payments technologies to the community banks. And payment system testing solutions provider Iliad is trying to encourage uptake with its new virtual testing platform to help FIs and gateway service providers design for RTP.
The June Faster Payments Tracker looks at the latest from the global real-time payments space, including efforts to develop new systems, as well as facilitate and advance the adoption of existing instant rails.
According to the tracker, there was a 24 percent year-over-year increase in same-day ACH payment volume between Q1 2018 and Q1 2019, and the global real-time payments market is projected to increase by a 30.6 percent CAGR between 2018 and 2025.
The gig economy’s functionality is tied to real-time payments. And past studies have shown that many (85 percent) gig workers say they would do more work if they were compensated faster.
According to the Gig Economy Index, freelancers comprised 32.6 percent of the U.S. workforce in Q4 2018, a number that’s expected to tip over to a majority share by 2027.
There are still barriers to seamless, real-time payments, though. Just over half (51 percent) of gig workers report being paid within a week of completing a job. Additionally, only 17 percent of freelancing platforms offered real-time payments.
The flip side of the above-mentioned stat that 85 percent of freelancers would work more if they were compensated quickly is that 73.7 percent of gig workers would leave freelance marketplaces over payment issues.
Even though most (82 percent) businesses say real-time payments resolve current payment challenges, according to the Faster Payments Tracker, a lot of the disconnect stems from invoice processing using legacy methods, coupled with the fact that many U.S. businesses operate on two-week pay periods. In the U.K. employees often get paid once per month.
Third-party providers (TPPs) like FlexWage and Wagestream have sprung up to fill this gap and shorten the time that workers need to wait to access their earnings.
Frank Dombroski, founder and CEO of FlexWage, told PYMNTS that faster access to funds can boost both morale and productivity, though he cautions about necessary limits for how much or how often a full-time employee requests. Gig workers are a different matter, however. “Gig workers are a little different [from full-time] — as [are] some part-time and young workers who maybe don’t have a mortgage or insurance to pay To attract and retain those workers — especially younger millennials [who are] used to instant gratification … like mobile [and] gamification — the model is more of a direct payment,” he said.
Large gig economy platforms like Uber and Lyft have built their own payout systems, which enable drivers to access instant funds up to five times per day. There are opportunities for FinTechs in this space to facilitate on-demand wages where that service is prohibitive for many employers because of the increased administrative burden of payroll.
Peter Briffett, CEO of U.K. FinTech Wagestream told PYMNTS, “Uber realized quite quickly that unless they pay their drivers every day with daily cash-outs, they had an issue with staff retention and the ability to get drivers to do more rides. Flexible payments for gig workers are fundamental. Paying people in lump sums every 30 days is not necessarily going to work for every worker.”
Faster, real-time payments don’t always apply exclusively the employer/employee relationship. This month’s tracker featured an interview with Laura MacMahon, co-founder and president of Family Plan, an app that facilitates expense sharing between divorcees.
The app is intended to reduce transactional and emotional friction around recurring alimony and child support payments, as well as sudden expenses like medical bills by using bank transfers or PayPal. The app has a value added service of custody calendar tracking and keeps a comprehensive record of users’ messages, payments and other information.
“[We focus on] making data entry very easy and seamless … and the fact that something can happen almost immediately — a request comes through and you’re able to pay it, and the other parent receives that payment in a really timely manner — that reduces all of that friction,” MacMahon said.