Real-time payments have proven value for many payment needs. Now, experts are looking at mining the potential for real time at the point of sale.
The technology to enable real-time payments at the point of sale is available today. But many questions remain: Are consumers ready? Are merchants ready? Is the payments ecosystem ready?
The answer is, kind of. The hesitation is like that you see with any change in payments. Questions surface over whether real-time payments at the point of sale will overly disrupt the regular flow of transactions.
Plus, questions remain about demand. Is there really a market for real-time payments at the point of sale? After all, the United States, as of a March report from ACI Worldwide Inc., ranked ninth in real-time payments transactions with 1.2 billion. India had the most, 25.5 billion.
Some payments executives don’t hesitate. “Absolutely,” says Brady Harris, chief executive of Dwolla Inc., a Des Moines, Iowa-based company that specializes in application programming interfaces for digital payments. In April, Dwolla debuted an API that can connect fintechs to The Clearing House Payments Co. LLC’s Real Time Payments network.
TCH’s RTP service primarily enables financial institutions to offer the real-time payment service to their business clients, which can then offer it to their customers. TCH declined to discuss real-time payments at the point of sale. “We have a lot going on with RTP right now, but POS is not one of them. It is something RTP will address in the future, but not right now,” a TCH spokesperson says via email.
The Federal Reserve is developing a real-time payment service called FedNow, but it is not expected to be available until 2023. The Fed did not respond to a Digital Transactions inquiry for this story.
“Transactions should happen as fast as the Internet moves,” Harris says. “As real-time payments continue to be more widely used by consumers of all ages and technology abilities, RTP will be essential for point-of-sale transactions.”
‘A Lasting Trend’
Others agree. “Absolutely,” says Erika Baumann, director of commercial banking and payments at Aite-Novarica Group, a Boston-based consulting and research firm. “For small businesses in particular, [real-time payments] can have a dramatic impact on cash flow.”
“There are so many options, PayPal, Zelle, RTP,” she says. “The issue really is how to change expectations of the POS experience. [With] online, [it] is much easier to align expectations than in a retail location, due to how we as consumers and business owners have been conditioned.”
Now, some consulting firms are measuring the potential for real time payments at the checkout counter. Deloitte published its “Real-time payments are changing the reality of payments” report that discussed the opportunity the payment method presents. Christopher Allen, Deloitte Consulting managing director and payments sector lead, says there will be point-of-sale and online opportunities for real-time payments.
“The interesting thing is that RTP capabilities advertise as being able to have other industry players participate in the ecosystem more directly,” Allen says. “I’m sure the online merchant community would love to get their money faster.” One acquirer, EVO Payments Inc., added in 2020 the Visa Direct push-payment service as a settlement option for merchants. Funds can be credited to a debit card at any time.
Real-time payments at the point of sale have the potential to speed up merchant funding, lower payment-acceptance fees compared to credit and debit cards, and increase visibility around payment status and transaction information. But can that potential be realized?
“You are seeing different markets and industries realize the potential of real-time payments,” says Harris. “The shift towards real-time payments for point-of-sale and online shopping is going to be a lasting trend that will become a standard option moving forward.”
Harris says a number of factors could affect the ability of real-time payments to have a larger role in retail payments. “Banking and government regulations are in the process of catching up to fintech solutions,” he says. “In Europe, the faster-payment movement was very much driven by the regulators. Here in the United States, innovators are pushing the real-time payment movement, causing banks and government regulators to play catch-up.”
As a result, he adds, “As policymakers and financial institutions start to catch up with the fintech industry, retailers and even countries will feel even more comfortable utilizing faster account-to-account transactions.”
The Deloitte report also suggests that technology innovation, such as pervasive smart-phone adoption and consumer use of digital wallets, will have a large role in real-time payments adoption. New providers, merchant and consumer expectations, how regulators treat real-time payments, and increasing globalization will all have an impact on real-time payments adoption, too, the report says.
‘The Paradigm Will Shift’
What will it take to get real-time payments in regular use at the point of sale?
“Merchants. They’re the ones who typically pay the cost of transactions,” says Ravneet K. Randhawa, senior manager of payments transformation at Deloitte Consulting. “They would play a significant role in driving adoption of real-time payments in the retail space.”
As Harris explains, the impact real-time payments at the point of sale could have on acceptance costs is substantial, “which is why you see the big-time card processors starting to invest in alternative payment methods. Real-time payment technology will be offered alongside credit cards,” he says.
“And because of how expensive credit card fees are to a business,” Harris continues, “we are seeing brands use account-to-account transactions to actually create their own customer loyalty debit card and offer rewards with the transaction savings, making account-to-account more appealing than a credit card for their customers.”
One early adopter of that logic was ZipLine, a private-label debit-payment service for convenience stores that is now owned by Professional Datasolutions Inc. While not a real-time payments variant, it does showcase the account-to-account example.
Still, Deloitte’s Allen cautions that credit cards offer benefits that real-time payments, at least at this time, do not, such as extended warranties and fraud-protection plans.
And consumers may need some coaxing, Randhawa says. “One thing to consider is that real-time payments is like an instant debit,” she says. “The U.S. has been more of a credit-based economy. However, we did see a shift in the pandemic. It would be interesting to see how this plays out in the longer run.”
What could aid the adoption for point-of-sale transactions? “Real-time payments are slowly becoming understood and expected by the market,” Aite-Novarica’s Baumann says.
She looks at the adoption of the Check 21 legislation 17 years ago as an example of how real-time payments at the point of sale might advance. “… Everyone panicked about what it would mean to convert a check to an electronic payment, and that anxiety went away as a new norm was established,” she says.
“As [real-time development] continues and accessibility expands, it will become more prevalent at the POS,” she adds. “Right now, real-time payments are thought of as beneficial for the recipient, but not as much for the payor. As real-time becomes more the norm, the paradigm will shift to be accepted as normal.”
As Harris says, “On e-commerce sites, customers value choice and expect a variety of payment options. Why pay a fee on top of your transaction when the funds can move from account to account at not even a quarter of the cost and with just as much reliability?” adding that Dwolla is working on how to introduce account-to-account payments with real-time speed in a retail environment. He did not share details.
An ‘Embedded’ Option
Real-time payments at the point of sale may not show up in a big way in 2022, but sources for this article agree it will happen relatively soon.
“From merchants’ perspectives, they would like to get their money faster,” Deloitte’s Allen says. “The merchant side would like to be a bigger player in the payment ecosystem. Potentially, real-time payments has the ability to allow for that. From the consumer side, it will create more innovation.”
He adds, though, that “research has suggested that consumers aren’t completely unhappy with how they pay for things.”
Still, the point-of-sale future has a place for real-time payments. “It will be part of the POS experience,” Baumann says. “Online, this is selecting the payment method at checkout. At a POS terminal, it will be embedded in the options we see today like tap-to-pay or Apple Pay through a device.”