One of the favorite pastimes of my 4-year-old nephew is to paytm everyone. He wants to scan the QR code from mobile phone of every other person who appears in front of him. He has learnt to dance on the payment successful background music. While he and many other millennials/Gen Zs can’t imagine a world without real-time payments, the rest of us have had other experiences as well.
While we may assume that every payment that feels like instant can be called real-time payment, it is often not correct. Mentioned below are four main characteristics that make a payment real-time:
- Speed– The transaction is settled within seconds, literally.
- Irreversible– A real-time payment once made can’t be reversed.
- Availability– This payment mode is available for 365 days a year, 7 days a week and 24 hours a day.
- Confirmation– The payee gets instant confirmation indicating whether the payment was successful or not.
The last 2 points are especially suitable for the kids of internet age since the concept of waiting for something is absolutely alien to them. Nevertheless, what excites them (and all of us) is the chance to boast about the stupendous amount of contribution India has made to the world of real-time payments. Of all the payments made via RTP in 2022, 46% of them were done in India alone. The figures impressed google so much that they ended up recommending the development of UPI- like system to Federal Reserve.
The other day, I was talking to a friend based in US since the last 15 years or so. We couldn’t help but wonder how come developed countries are left so far behind in the race of RTPs. He mentioned that:
- USA’s first RTP network The Clearing House was launched in 2017 and is basically a consortium of big private sector banks who wanted to offer RTP to retain their competitive edge. However, smaller banks and credit unions saw this as a predatory move and never really participated.
- The support from Federal Reserve regarding the RTP as a mode of payment was not really defined, neither did they provide any platform to do so. This is all set to change with the launch of fednow in 2023.
- There was growing demand in other payment alternatives like digital wallet, wire transfer etc. than in real-time payments
- The notion that large volume transactions done by enterprises don’t need RTP as much as retail users deprioritized the whole topic.
While India has been basking in the glory of UPI, it is important to note that there also exists a dark side to the whole RTP saga. Eye-blinking speed of transactions makes it challenging to catch fraudulent cases. A slight delay in the determination of a fraudulent request would render it pointless since the payment might have already been made by then, and can’t be reversed.
Having said that, none of these risks deter my nephew from answering the doorbell to paytm our new guest at the door!