Real-Time Payments (RTP) is the first new payment rail in forty years since the development of the ACH network. Supported through The Clearing House by major financial institutions including M&T Bank, it has created the foundation for instant payments in the United States. In July 2023, the Federal Reserve Bank announced “FedNow” a similar alternative for instant payment transactions. As more businesses and customers adopt this technology, public entities will also have the opportunity to benefit from its use.

While businesses discuss and implement the operational efficiencies of instant payments, finance leaders in the public sector may wonder how these payment technologies can be applied to public entities. Businesses in various industries are already taking advantage of the RTP and FedNow networks, especially with recent increases in transactions. With instant payment options, governments and public entities can leverage a rapidly growing payment product that offers immediate settlement of funds (within seconds), data-rich messaging, and 24/7 accessibility.

For instance, RTP can revolutionize the way customers interact with online bill payments through two-way, real-time communication. The adoption of RTP can benefit both the biller and the customer. In the future it could enable instant local government constituent payments for various transactions, such as tax refunds, unemployment, and social program payments. Additionally, it supports cost-effective bank-to-bank account transfers that could lower financial institution service fees overall.

So, what does the public sector need to know about real-time payments? Here are answers to four frequent questions.

1. What are real time payments?

RTP is a digital payment network that enables organizations to send and receive instant payments. There are two operators for instant payments in the U.S., the Federal Reserve Bank (FedNow) and The Clearing House (RTP) - M&T Bank clears instant payments via RTP. With features designed to streamline payments, reduce fraud risks, and provide real-time confirmations, RTP offers benefits such as lower reconciliation costs, faster account opening, and improved cash flow.
As FedNow evolves, M&T will plan to leverage both networks.

2. How does RTP work?

RTP introduces a groundbreaking payment system, allowing for instantaneous sending and settling of payments. Unlike traditional methods like checks, cards, or ACH, it securely pushes funds directly from the sender’s bank account to the receiver’s account. Future features include the ability to facilitate instant payments and enhance straight-through processing for payment requests. The network is always accessible, enabling payments to be executed 24/7/365, including weekends and holidays.

3. What are the benefits of real-time payments?

RTP empowers organizations with control over their money movement and fosters transformative innovation. Key benefits include immediate availability of funds to the receiver, ensuring final and irrevocable payments, simplified payment initiation for bills and invoices, enhanced operational efficiency thanks to rich payment and remittance data, better cash flow management, and the capacity to initiate transactions at any time from existing accounts.

4. What are some use cases of Real-Time Payments?

RTP allows for a wide range of use cases, such as immediate vendor payments, quick-turn bill payments, instant consumer refunds or rebates, efficient payroll processing, emergency payouts (even outside regular business hours), time-sensitive disbursements, and simple domestic bank-to-bank account transfers. An evolving and important use case is Earned Wage Access, allowing workers daily access to funds.

RTP and the future of payments.

RTP presents an opportunity for organizations to gain a competitive edge in the payments landscape by offering modern payment solutions. It enables seamless money transfer between vendors, suppliers, constituents, and within an organization, bringing about transformative possibilities. M&T Bank possesses the necessary expertise, technology, and products to assist local governments in integrating RTP into their payment strategies. RTP’s capacity for sharing more information encourages organizations relying on manual payment processes to consider leveraging their ERP systems for enhanced efficiency and faster payments.

Contact your Treasury Management Consultant or Relationship Manager for more information about how real-time payments can benefit your organization.

This content is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.