In this article:
If you've ever needed money fast—whether to cover an emergency or make a quick purchase—you may already know the pain of waiting around for a transfer to clear. A traditional electronic transfer between banks can take three days—one day to initiate, one to process and a third to post to your account. Receiving a check by mail? Good luck. Fortunately, the rising popularity of real-time payment technology is making it faster and easier than ever to move money around.
Financial institutions use real-time payment technology to move money from one party to another in seconds, not days or weeks. If you've done an instant Venmo or Zelle transaction, you've lived the real-time dream. Real-time payments also facilitate faster loan funding, quicker direct deposits, instant credit card access and a host of speedy features that help financial transactions live up to evolving standards. Read on to learn more.
What Are Real-Time Payments?
Real-time payments became a reality in the U.S. in 2017, when The Clearing House Payments Company introduced new digital infrastructure capable of processing transactions almost instantly. The idea was revolutionary, and it allowed the average consumer to shop and pay bills online, or deposit a check using their mobile phone. Quickly, instant transactions became routine.
In addition to becoming a popular feature of person-to-person (P2P) payment apps like CashApp and Venmo, real-time payments are also a simple and transparent way for businesses to pay contractors, issue payroll and receive payment.
Real-time payments are a way to avoid the lengthy verification processes that slow traditional transactions down. Paper checks can take days—even weeks—to post after being deposited. Regular electronic transfers, as already mentioned, are often a three-day event. Even credit and debit card transactions can take a day or longer to "settle," even though purchases go through instantaneously.
Where Can You Get Real-Time Payments?
In your daily life, you're most likely to encounter real-time payments on P2P apps. These apps allow users to send or receive money almost instantly, any day of the week and any time of the day—although you may pay an additional fee for instant payments versus free regular payments. You don't have to exchange cash or a check. You don't have to visit a bank branch or wait for "business hours" for money to post.
But wait. Outside of these apps, maybe "lightning fast" doesn't actually describe your experience with most forms of money transfer. You're not imagining things. Real-time payments are still not the standard for most types of traditional transactions, including check payments, regular electronic transfers and card payments.
Still, real-time payments do seem to be setting new expectations for speed. For one thing, people really like the idea of faster payments. According to industry tracker PYMNTS, 70% of consumers who have used real-time payments before would be "very" or "extremely" likely to use the option again if it were available for free, and nearly one-third (30%) consider real-time payments to be a key factor in selecting financial institutions.
The value of speedier transactions isn't lost on banks, credit card companies or lenders. They're looking at ways to entice customers by accelerating money movement with real-time payments and other types of timely incentives. Here are a few examples:
- Online bank Chime offers early access to your direct-deposited paycheck—up to two days faster.
- Personal loans from Upstart may be funded in as little as one day.
- The Mello Smartloan mortgage from LoanDepot may shave as many as 17 days off closing by speeding up the approval process.
- Many credit card issuers now offer instant card credentials you can use online while you're waiting for a new or replacement card to arrive.
And these developments may be just the beginning. New ideas for faster payments and transactions are constantly coming to the fore. The industry is looking ahead to an additional real-time payments network from the Fed, called FedNow, which could help expand options and accelerate money transfer for consumers and businesses even further.
How to Use Real-Time and Faster Payments Wisely
In the meantime, consider these tips for speedy transactors:
- Shop around for fast options. If speed counts, seek it out. Whether you'd like a mortgage that closes fast or real-time payment capabilities for your small business, you may have more options than you think. Ask your bank how they can help you, or shop around for the speed you need.
- Be prepared to pay, but don't overpay. Fast money can cost you a bit more, but beware of exorbitant fees or choices that aren't in your best interest. You might choose to pay slightly more in interest or fees to get a personal loan with fast funding. Some fast money sources aren't consumer-friendly, however—a payday lender could charge an annual percentage rate of nearly 500%.
- Think fast. Since real-time payments have no built-in lag time, make sure you have the money available in your account before you send a real-time payment. Be careful when entering payment information as well: Once you've sent a payment to the wrong recipient, you probably can't retrieve it.
- Beware of fast fraud. The Federal Communications Commission warns that fraudsters—including some posing as charities or online sellers—are requesting payment by P2P apps as a way to get money instantly and anonymously. Before you know what hit you, they're gone—along with your money.
Real-Time Payments: A Growing Reality
Both directly and indirectly, real-time payments are changing the way we pay and get paid. Going forward, look for additional opportunities to transact quickly. And as you go, take an extra moment to be secure.