There was quite a buzz when Walmart announced last year that it was launching support for real-time payments through FedNow and the RTP network with Fiserv’s help. Despite this, many consumers are still not using pay-by-bank at retailers, and they might remain hesitant in doing so.
The Benefits and Use Cases for Merchants
Real-time payments offer significant benefits to retailers by eliminating the 2% to 3% interchange fees associated with credit and debit card transactions. This allows merchants to receive their funds more quickly, aiding in faster reconciliation of transactions.
Real-time payments are also incredibly valuable due to their around-the-clock availability. For instance, if a business is told it won’t receive supplies until payment is made, real-time payments can be used to push the money out immediately—regardless of the day or time. Unlike FedWires, which require manual intervention and operate only during business hours, or ACH transactions that run in batches and are posted during business hours only, RTP and FedNow offer 24/7 functionality.
This feature could also prove beneficial for a payment processor paying out daily credit card sales to merchants. Real-time payments can be a powerful tool for insurance companies as well, enabling them to resolve claims instantly, helping victims of natural disasters or other incidents recover quickly.
No Dispute Mechanism and Other Challenges
The lack of a dispute mechanism is one significant challenge with real-time payments. Since transactions are irrevocable, users have no way to contest unauthorized or erroneous transactions, much like in peer-to-peer platforms such as Zelle and Venmo. However, this characteristic can be advantageous in certain scenarios where immediate payment is crucial.
ACH transactions, on the other hand, come with built-in dispute mechanisms. Banks can reverse fraudulent transactions if consumers notify them. Currently, there isn’t a similar mechanism for RTP and FedNow.
The absence of the ability to request funds further limits merchant applications. Unlike card-based transactions where customers can tap their cards, merchants cannot initiate payments directly. To verify successful payment without checking bank accounts at every point-of-sale station would require advanced AI bot systems that scan account details for specific deposits, which is impractical.
The Leapfrog Effect and the US Context
While real-time payment systems like Pix in Brazil and UPI in India have gained significant traction quickly, this success comes from these countries having less developed payment infrastructures. The governments mandated adoption of these technologies where they could “leapfrog” over more traditional methods.
In the United States, debit card infrastructure is deeply entrenched, making it less practical to replace with real-time payments. From a consumer’s perspective, using a debit card already pays by bank; merchants might save on interchange fees but face the challenge of lower prices due to regulatory mandates under Durbin Amendment.
Searching for a Catalyst
Despite the numerous potential benefits, no new solutions seem imminent that could significantly propel real-time payments into widespread use at retailers. The media often hype these technologies as “the next big thing,” but in reality, they may not align with current business needs or regulatory landscapes.
FedNow and RTP are valuable tools for moving money within the country, yet their primary purpose is not to facilitate consumer purchases from merchants. Real-time payments might become more prevalent when a compelling new use case emerges, but for now, their role in retail settings remains limited.
