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Real-Time Payments in the Americas: Potential & Challenges
01.09.2022
4 min
The modern pace of life dictates the need for instant cross-border money transfers. Real-time payments (RTP) play a pivotal role in catering to this demand, as they are settled in a matter of seconds from the moment of initiation.
In this overview, we will compare how RTP is adopted in two completely different payment landscapes - Latin America (LATAM) and the US, and list the opportunities and challenges this fund transfer type is facing. We will also share some forecasts regarding RTP’s evolution in the upcoming years - read ahead for all the details!
Reasons Behind the Growing Popularity of RTP
Real-time payments have gained a lot of traction recently, with their market size estimated at $13.55 billion in 2021 and expected to grow at a CAGR of 34.9% from 2022 to 2030. What’s more, RTP accounted for a 9.8% share of global digital transactions in 2020, and this figure is forecasted to increase up to 17.4% by 20251.
The main factors driving the popularity of RTP are:
- Convenience and accessibility. With RTP, merchants, financial institutions, and consumers can conduct purchases, settle bills, and make immediate money transfers 24/7/365.
- Better data insights. One of the biggest advantages of RTP for B2B payments is instant access to extensive and up-to-date transaction information.
- Meeting customer expectations. As more and more entities adopt RTP, consumers begin to expect the immediate transfer of funds to be commonplace. Thus, offering payment services that are settled instantly is becoming a matter of meeting consumer expectations and staying competitive.
- Lower risk of failed payments. RTP transactions are irrevocable and can only be conducted if the sender has sufficient funds, which minimizes the chance of payment exceptions.
- Accounting efficiency. Real-time payments have the power to reduce the volume of a company’s back-office processes, including accounts receivable (AR) and accounts payable (AP), which, in turn, can lead to lower operational costs.
The list of advantages of RTP goes on, making it clear why such transactions have become a worldwide trend. Let’s take a closer look at the way they have gained recognition in LATAM and the US.
The Adoption of RTP in the US and Latin America
The US is often one of the first countries to adopt emerging tech solutions. However, when it comes to real-time payments, the LATAM region took the lead.
One of the most prominent RTP solutions in Latin America is the Brazilian 24/7 real-time payment network, PIX. The usage of this system in Brazil has surpassed credit card ownership, which accounts for approximately 25% of the country's population. Another worthy mention is SPEI in Mexico (The Interbanking Electronic Payment System), which also functions as an RTP network and is rapidly gaining national popularity.
In the US, real-time-payment solutions like Venmo and Zelle are on the rise, with $230 and $490 billion in payment volumes processed in 2021, respectively. Also, there is an up-and-coming RTP solution called FedNow that is scheduled to be launched in 2023.
However, despite the promising statistical data in both regions, there are certain obstacles standing in the way of full RTP adoption.
Challenges in Integrating RTP Systems
The main challenges that RTP networks face globally are:
- Fragmented landscape. Since RTP are local by nature, merchants operating internationally have to integrate multiple solutions for processing instant transactions, each with its own different API.
- Need for local payment rail approval. Merchants may face the need to receive approval from a local rail to be able to process RTP, which can be a lengthy and complex process.
- Global interoperability. Creating an interoperable global network for instant money transfers is a long-term endeavor due to the fact that different countries are at various stages of RTP adoption and may have clashing payment regulations.
- High-risk transaction limitations. Vendors working in industries that are considered high-risk are currently not eligible to provide RTP service since such transactions cannot be disputed.
The same concerns apply to the LATAM and US, affecting the spread of RTP networks in these areas.
What Does the Future of RTP Look Like in LATAM and the US?
According to industry experts, if countries in Latin America seize the moment to develop and promote RTP networks, these solutions have an amazing potential to drive economic growth and financial inclusion. Governments and corporate champions are expected to be the main driving forces in the LATAM region’s shift toward real-time transactions.
In the US, instant money transfers are said to be “in the fast lane”, evolving quickly in response to the digitization trend boosted by the COVID-19 pandemic. The FedNow system that is going live next year will speed up the RTP’s spread even more, offering improved efficiency and convenience for businesses, individuals, and FIs.
On a wider scale, the full adoption of instant transactions and the emergence of an interoperable global RTP system is only a matter of time. Nowadays, 40 countries already have real-time payment solutions in place, and over half a dozen more are expecting to launch theirs before the beginning of 20232.
These new networks will be using existing instant fund transfer initiatives as a blueprint for their own development, so we are sure to see the opportunities and challenges of RTP in the LATAM and US tackled with unconventional strategies.
1 - Grand View Research - Real-Time Payments Market Size
2 - Deloitte - Real-time payments and implications of the COVID-19 pandemic