By Ken Musante
Napa Payments and Consulting
If you have sent or received money via a cash app, like Zelle, you know the transfer happens in real time. Unlike a traditional ACH, real-time payments occur in real time, where ACH, even Same Day ACH, are batch transactions.
Payments made via Zelle are both instant and irrefutable. If you've paid the wrong person via Zelle, you are at their mercy to return your funds. Some other prominent cash apps may have the same features as Zelle, but only allow for instantaneous transfers for money already in their cash app and only going to another user of that same cash app.
This is distinct from Zelle which utilizes The Clearing House’s Real Time Payments (RTP) solution to facilitate these low-value person-to-person (P2P) payments. For such a solution to work, each individual transaction must be cost efficient and received by a bank connected to The Clearing House or appropriate third party. Bank wires were obviously not built to manage cash app payments.
As I shared in "Payment in real time," www.greensheet.com/emagazine.php?article_id=6928, the demand for real-time payments is surging around the globe and particularly within the United States. Spurred by the COVID-19 shift to digital payments and mobile wallet adoptions, freelance workers often seek instant payment for their services.
From an employer's standpoint, real-time payments offer a cost-effective advantage, especially in the face of a competitive workforce within the gig economy. Currently, The Clearing House’s solution is only available within the United States, but that may change in the coming months.
In April of this year, The Clearing House disclosed plans "to launch a pilot service for immediate cross-border (IXB) payments with the support of banks from both sides of the Atlantic. The pilot service is scheduled to begin by the end of this year with several participants joining the service in a phased approach" (see https://prn.to/3QvuiZS).
This is a significant step in furthering the availability of low-cost, real time, international payments. Payment providers may soon be able to pay merchants instantaneously and by transaction. While in the context of a coffee house, this seems unwarranted, for a personal service professional or contractor, the immediacy may be warranted and potentially a service differentiator.
Other near real time payment and international solutions (for select countries) are Mastercard Send and Visa Direct. Both solutions reverse the settlement process and allow funds to be "pushed" to an eligible card connected to a checking account. While the funds will be available on the card within seconds, they may not be truly a real time payment, as the funds will not always be available for immediate withdrawal. This does not diminish their value as an alternative, but they should be differentiated from instantaneous funding.
Mastercard touts the use of its service for gig workers, humanitarian aid, merchant settlement and insurance claims. Visa provided the diagram accompanying this article to illustrate the process, (see https://vi.sa/3O4pVDp). Like with The Clearing House's RTP, the sender bears the cost for sending the funds. Because of the additional players, it will be more expensive than RTP. Push to debit has an interchange cost in addition to network fees and processor fees. Because of the ubiquity of debit cards, however, it will be very useful in paying gig workers and can be used in the context where a platform wishes to rapidly scale to new geographies. Moreover, it remains much faster than ACH and has greater coverage than RTP. Additionally, unlike with Zelle and RTP, there is a mechanism for reversing erroneous transactions.
RTP’s international capabilities will spur growth. Its lower costs will further availability and drive adoption. RTP is a great solution when the sender can dictate the accounts to which it will fund in order to ensure the recipient’s bank accepts RTP. Entities needing to provide immediate payments to a diverse group, however, will default to a push to debit solution and absorb the greater costs as a trade off for its ubiquity. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He has also served as an expert witness on numerous complex civil and criminal cases in payments, a service he provides, along with consulting on merchant services and platforms, as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com, 707-601-7656 or www.linkedin.com/in/ken-musante-us/.
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