What are real-time payments, and how are they shaping the future of e-commerce?

What are real-time payments, and how are they changing e-commerce?

At Volt, we talk about real-time payments a lot. But what exactly are they? How do they fit into the open banking picture? And what advantages do they have over card payments?

It’s time to do some unpacking…

What’s the difference between real-time payments and open banking payments?

In an e-commerce context, real-time payments and open banking payments are essentially the same thing. Open banking allows shoppers to pay merchants direct from their bank account. A third party like Volt facilitates these ‘open’ payments.

Because open banking payments are account to account, minus any intermediaries, they’re fast. Near-instant, in fact – hence ‘real time’. This speed is also down to the ‘rails’ real-time payments run on, like Faster Payments in the UK, SEPA Instant in the EU, and Pix in Brazil.

These rails, however, aren’t inherently designed for consumer-to-business payments. They’re great when you need to initiate a bank transfer to pay back friends or settle an invoice, but prior to PSD2 – the EU regulation that paved the way for open banking – real-time payments were never truly compatible with e-commerce.

Real-time payments versus card payments

Four years on from PSD2, it’s accurate to say that real-time payments are beginning to challenge cards in the e-commerce world. The infrastructure underpinning them – which is effectively a combination of API connections to banks, the ability to initiate and orchestrate payments, and shopper UX (in other words: the checkout experience) – has evolved at lightning speed.

There’s data to back up real-time payments’ challenger status. Last November, Juniper Research revealed that the value of open banking-powered payments reached almost $4bn in 2021. By 2026, it concluded, their value will exceed $116bn. That’s a growth rate of 2,800%.

So, what’s behind this phenomenal rate of adoption? To put it simply, merchants have waited far too long for a viable alternative to cards. They need a payment method that’s faster, simpler and more secure – and which doesn’t come with high transaction fees.

Real-time payments deliver on all fronts. They settle in seconds, not days. They’re incredibly straightforward for shoppers, who no longer have to manually enter card numbers, expiry dates and CVV codes. They’re safer, too – aside from not sharing any personal credentials, shoppers use biometric authentication when they log in to their bank’s app to make a payment.

All this is good news on two fronts: conversion and loyalty. Real-time payments, because they’re almost effortless, are less likely to see checkout abandonment. Further, data shows that shoppers who choose bank-direct payments at the checkout return for repeat purchases. Why? Because they value merchants that offer a faster, easier way to pay.

Are real-time payments standardised across borders?

Until now, real-time payments haven’t worked to a single standard. Sixty countries have rolled out their own systems – so while real-time payments’ spread is global, it’s also disparate and technologically fragmented.

This is problematic for merchants who want to accept cross-border payments, and for adoption per se. Think of how ubiquitous the Visa and Mastercard logos are. Without real-time payments having a global equivalent (you know what you’re going to get when you select Visa or Mastercard, wherever in the world you are), how can they compete with the duopoly’s dominance?

At Volt, we’re building the first global real-time payment network. We integrate domestic real-time payment systems – like Faster Payments, SEPA and Pix – to a single point of access and one harmonised standard. This allows businesses around the world to accept real-time, account-to-account payments from their customers, wherever they happen to be, in the same seamless way.

Let’s explore one hypothetical use case. A Portuguese airline wants to sell flights to consumers in Brazil. Approximately 70% of Brazil’s consumers, however, have cards that can’t process cross-border payments. They’d like to book flights with the Portuguese airline, because their prices are competitive and the flight times suit them, but they need a new way to pay.

Now, let’s say the airline integrates Volt. These consumers could then choose Volt at the checkout, be redirected to their banking app via Pix, and pay for their flights in Brazilian real. The airline would receive the money in a matter of seconds, in their home currency (euro). Everybody benefits.

It’s easy to see, then, how real-time payments – when working to a global standard – can be so powerful. It’s why we’re on a mission to build the infrastructure for ‘real-time payments, everywhere’, and why we think they represent the future of payments.