How Real-Time Payments Are Changing Trading And Other Sectors

Whereas payment methods like credit cards and even bank transfers can take several working days to complete, modern payment methods including digital wallets and cryptocurrency offer instant or real-time payments. With these methods, recipients receive and can access the money instantly.

While the biggest advantage of these payments is the speed at which money can be transferred, they also offer a host of other benefits. Recipients can enjoy improved cashflow and, if there are problems with the payment, they are immediately obvious, negating the need to deal with issues after the fact.

However, for all the benefits these new technologies offer, there are some potential challenges. Convincing customers to move over from contactless and bank payments can be difficult. Most have used these payment methods for years and cannot instantly see the benefits of moving over.

Instant Access To Money

The biggest benefit of real-time payments is that the recipient can access funds as soon as they are sent. This benefits businesses but it also benefits individuals. For example, online casino instant payout services typically use digital wallets or cryptocurrencies to facilitate real-time payments. The player can deposit funds that are available immediately, and they can use the same technology to gain instant access to their winnings. There’s no waiting around for three to five business days while money is transferred to a credit card or bank account.

Businesses and professionals can also enjoy the same benefits. The sender initiates a payment, either by clicking a link, scanning a QR code, or just tapping their phone on the payment terminal. The payment is processed and forwarded directly to the business’s wallet or account. There is no processing delay. While credit card payments appear instant to the payer, funds can take several days before they clear in the recipient’s account.

For traders, instant payments are essential. Traders generally buy stocks, shares, or securities at a level they deem to be desirable. Any delay can mean the price has changed and the trade is no longer viable or attractive. This is especially important in crypto trading where volatility means that prices can increase or decrease very quickly.

For freelancers and those in the gig economy, payment anxiety is a very real thing. Even when a client tells you they have paid, having to wait a week for the payment to hit your bank account can feel like a very long wait. Instant payments alleviate the stress caused by waiting.

Transparency

The recipient is never certain a payment has been made until they can access it in their account. Even a pending payment status can leave questions. For retailers and traders, this means waiting until the payment has cleared before sending goods and this, in turn, can lead to frustration on the part of the buyer.

Traders need transparency, especially if they are dealing with a private sale or acquisition. It isn’t uncommon for Bitcoin buyers to deal away from centralized exchanges. Smart contracts can help ensure that prices are fixed, but the transparency of real-time payments promotes trust in both parties.

Smart contracts are established on the blockchain, and once determined conditions have been met, the smart contract is completed. For example, a private crypto sale might see one party agree to buy one Bitcoin for $100,000 from another party. The contract would be set up so that when the buyer has sent $100,000 and the seller has sent the Bitcoin, the contract is completed and the Bitcoin and money are sent to the other parties.

With real-time payments, there is no delay between the buyer sending the money and it being received. Not only is this payment transparent because it is instant, but the smart contract can be viewed by both parties.

Identifying Issues

Traditional payment methods can take days to process, and things can go wrong during the processing time, ultimately leading to the payment failing.

Checks, although much less common nowadays, are a good example of how a payment might fail. The payer writes a check and gives it to the recipient. The recipient puts it in their bank and the bank starts to conduct checks and process the payment.

If the payer does not have the funds to process the check, or there is an issue with signatures not matching, the payment fails. The recipient’s bank has to contact the recipient who, in turn, has to contact the payer who will then need to determine the reason for the payment failure and potentially issue another check.

Considering the process can take several days if the payment has to be retried, this means it can take weeks for the payment to finalize and go through. With real-time payments, there are fewer ways that payments can go awry but if something does go wrong, the parties are notified instantly because the payment will fail.

The parties can make any amendments or corrections and then process the remittance again. Even if it takes a few attempts before the payment is completed, the whole process takes minutes rather than weeks.

Improved Cashflow

Receiving payments promptly means the recipient has instant access to money that is rightfully theirs. This money can then be used for whatever the holder requires. Traders often need to act quickly to liquidate assets and use the money for a more beneficial trade.

For example, if a trader believes a certain stock price is going to head down, while the value of the Yen is going to go up, they need to short their position on the stock and use the liquidated funds to buy into the Yen. A delay of hours means that the stock price could already be in freefall while the Yen might have already realized its increases. T

The trader has effectively missed out on their trade and potentially lost out on money. With real-time payments, as soon as the trader sells their stock, they would receive the money in their account. They can then instantly make a buy order for Yen, and this will also be completed straight away. In a matter of minutes, they could have moved out of one position and into another position in a completely different market.

For day traders, this kind of instant payment is critical, but it can also be important for fundamental and long-term traders.

Available 24/7

Traditional markets like stocks and shares operate during market hours in the relevant country. Outside these hours, it might be possible to initiate private deals, but even these will not register until the first bell in the morning.

The Forex market is a little different, operating 24 hours a day between Sunday evening and Friday night because it deals with foreign currencies in every timezone around the world. Some traders only buy and sell securities from their own market, typically because they have a better understanding of local markets.

In other cases, traders in Japan might like to invest in penny shares in the UK or the US. Some traditional payment systems effectively prevent these trades because they only operate during business hours in the country of origin.

Real-time payments operate 24 hours a day, 7 days a week, so they can be used to trade on foreign markets. They can also be used to buy cryptocurrency on centralized exchanges, regardless of the currency or where the exchange itself is located.  

Crypto is a 24-hour market and opportunities can present at any time of night or day. Because traders do not need to wait for their bank to open, real-time payment methods are essential for traders who dive into the cryptocurrency market.

Improved Customer Experience

Traders not only deal with outgoing payments but incoming payments as well. When they close out a position, they expect to receive the funds from that position quickly and without any trouble. Withdrawing cash to credit cards or even bank accounts can take several days.

Although it depends on the policies of the exchange or other business, real-time payments will be completed in anything from a few seconds to a few minutes.

Again, blockchain smart contracts can be especially beneficial here. Contracts are automated, which means as soon as the trader initiates a withdrawal or sale, the contract is established on the blockchain, and money is received as quickly as the cryptocurrency payment can be processed on the network. This provides complete transparency and it reduces the headache of waiting for money. It provides a better user experience for the trader and this, in turn, gives the exchange or business a better relationship with the trader.

Because problems can also be resolved immediately, it can also improve customer experience in this way. Errors and problems do occur, and most traders know this. But, they do expect a speedy resolution to those problems. Real-time payments can help facilitate this.

Simplicity

Typically, traders won’t wait for one payment to finalize before moving on to make another acquisition or move into a new position. Instead, they will use other money to move into that position. Some traders may move into new positions several times a day.

Considering every new position involves at least one incoming or outgoing payment, this could mean having multiple transactions all being processed at the same time. It is important that the trader knows where their money is and tracks these payments, but it can be very challenging with so many on the go at once. It’s not only like spinning multiple plates but spinning them in different directions and at different heights and speeds.

Real-time payments instantly appear in accounts, and the accounts can be linked to accounting or financial monitoring software, enabling the user to automate the entire accounting process. This simplicity leaves traders free to concentrate on Fibonacci levels and Elliot Wave theory or to pore over business fundamentals and earnings calls.

Modern payment systems can also carry a lot more data, and data is everything to traders, even when it comes to monitoring their financial performance.

Cross-Border Payments

While some trades may be initiated and completed in the trader’s own country, this certainly isn’t true of all trades. US traders may deal with brokers from Australia, Europe, or the UK. This is especially true in Forex and cryptocurrency but can be true of commodities and securities traders, too.

Because real-time payments are available 24 hours a day, seven days a week, they are especially beneficial for overseas transactions. This is even more true of cryptocurrency.

Cryptocurrency payments are effectively borderless. They cost the same and take the same time to process whether the payment is being sent 10 miles or 10,000 miles. And because cryptocurrencies are not country-specific, the sender and receiver can potentially complete trades without having to deal with exchange rates and other issues common with traditional payments.

RTP Challenges

There are a lot of benefits to real-time payments, for traders, businesses, and individuals. Speed is the most obvious benefit, but others include transparency and reduced anxiety. However, for all of the benefits, there are some challenges faced by those who want to use real-time payment systems.

Cybersecurity

One of the reasons that credit card payments take so long to process is because the credit card issuer and other institutions are completing certain checks to try and prevent fraudulent activity and other infringements. Real-time payments have to try and conduct any checks instantly and automatically.

For these reasons, fraud can be higher with real-time payments than with traditional payments. When using cryptocurrency, which is a popular form of real-time payment, users need to ensure they use a secure, reliable wallet and that they purchase their crypto through a reputable exchange.

It is also worth noting that cryptocurrency payments use blockchain, and blockchain is a publicly accessible digital ledger. Although transactions do not include personal details, they do include certain other details like wallet addresses, transaction type and size, and the time of the transaction. This means that with deep analysis, it can be possible for groups and individuals to track payments and their senders and recipients.

This can be overcome, at least to some extent, by using privacy coins and following best practices.

Availability

Traditional payment methods are tried and tested. Payment terminals and payment processing systems are in place in businesses across the world already. While some of these processes can be converted or expanded to accept common real-time payment methods, this isn’t always true.

Digital wallets require the setting up of digital wallet software which, in turn, means giving access to stakeholders.

Cryptocurrency requires a digital wallet, exchange account, and potentially even cold storage or the use of a custodial service.

Many businesses view this as being too much of a challenge, so not all recipients will be set up to be able to accept instant payments. This is especially true of cryptocurrency: its volatility puts a lot of businesses off using it. Similarly, some traders will avoid the use of these technologies if they have systems and processes in place to deal with traditional payment methods.

Customer Adoption

For other businesses, including commerce businesses and freelancers, it is also a question of demand. Most freelancers invoice their clients who, in turn, make payment after 7 or 30 days.

Although some businesses will pay straight away, many businesses still operate under the philosophy that it is best to keep money in their account until the very last minute. Some businesses are unlikely to want to adopt cryptocurrency or even digital wallet payments because they have accounting software and entire accounts teams in place who are experienced in traditional payment systems.

Knowledge

For a lot of traders and businesses, traditional payment systems are all they know. Traders will have funds set aside to tide them over while they wait for transactions to process, and businesses have complex payment processing procedures in place that deal with the whole process from start to finish.

Unless they have already considered the use of real-time payments, they are unlikely to have looked into what it requires, whether they can transition easily, and how to go about making the move over. Many businesses will consider digital wallets to be useful for personal transactions and to pay for goods online, so why bother?

Cryptocurrency has endured a lot of negative press, especially from those in the traditional payment industry, that will have put them off learning about disruptive financial technology.  

Volatility

Traders thrive on volatility. It carries risk but it also means greater potential for profit. While certain markets are known for being more volatile, nothing comes close to cryptocurrency for its volatility.

But, while volatility is appealing to traders, it is less appealing to businesses and individuals. Crypto can lose a large portion of its value overnight, and businesses that accept instant payments using this method might be concerned about shedding value before they can do anything about it.