First, there were electronic transactions with next business day settlement. Then faster payments arrived, revolutionizing how companies and consumers move money. Now, two instant payment methods push speed and availability even faster: RTP® from The Clearing House® and the upcoming FedNowSM service.
Both platforms can help companies reach domestic DDA accountholders 24 hours a day, 7 days a week, 365 days a year, with irrevocable transactions. RTPs allow payments up to $1 million; FedNow will launch with a $500,000 per-transaction limit.
With so many choices in the market, many treasury professionals are asking, should we deploy RTP now? Or wait until 2023 and adopt FedNow? Which method is best for our disbursement needs?
Instead of taking a “wait and see” approach, there’s good reason for businesses to consult with their banks now to make sure you’re maximizing the opportunity presented by instant payment methods. Savvy financial institutions are working side-by-side with payment providers and customers to make using these new methods as seamless as possible.
Gain a competitive advantage with instant payments
Instant payment rails like RTP and FedNow empower businesses to send and receive payments within seconds, giving payees almost immediate access to the funds.
This speed and control provides a number of potential benefits:
Stronger liquidity management. Instant payments can reduce uncertainty from payment delays and boost working capital, helping businesses strengthen liquidity management and reduce the need for excess cash on hand to cover emergencies or float.
Greater customer and supplier satisfaction. No matter who your business pays, reducing the time and effort it takes to receive funds makes a difference. Paying time-sensitive contracts or insurance claims with instant transaction capabilities, for example, can improve your brand experience and even be a competitive differentiator.
Reduced friction across the payment process. Instant payments not only settle faster, they also make invoicing, deposits, posting, and other accounting activities easier. Unlike checks or other payment types, there’s less need for data entry or research to apply payments. “Request for payment” functionality can even eliminate invoicing.
Use instant payments when speed, accuracy, and finality matter
How will you know which instant payment methods are right for your organization? Start by considering your use cases. Instant payments like FedNow and RTP work best when speed, accuracy, and finality are critical to the transaction.
Early adopters use instant payments for scenarios like these:
- Mortgage and lending payoffs at closing
- Insurance claims settlements to policyholders
- Emergency payroll and gig employee payouts for the company workforce
- Merger and acquisition transactions
- Time-sensitive payments to key suppliers
Next, work with your bank to understand the requirements for issuing instant payments via The Clearing House and the Federal Reserve. Connectivity will be important, as these transactions may require an alternative to daily batch processing.
Payee preference is another factor. Providing your suppliers and customers with options for instant payment can lead to greater satisfaction with your organization.
Look for bank tools that help you with payment “decisioning” so you can serve your payees well, without adding extra workload for your team. An instant payments engine lets you send transaction details, while your bank helps manage the process of routing each disbursement through the best instant payments network for your business need.
Lastly, consider the impacts of non-refutable transactions. How will you update your internal treasury management policies and controls, and set appropriate permissions and limits in your systems, so you’re assured your payments reach the correct recipients? Leveraging dual controls, account validation, and other services will help everyone in your company transact with confidence.
Modernize your payments experience
In the blink of an eye, it’s now possible to move money safely, efficiently, and conveniently. RTPs and FedNow help your business enjoy these benefits and stay current with the latest instant payment options.
RTP® is a registered service mark of The Clearing House Payments Company L.L.C.
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