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How Do Instant Payments Work?

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Last editedJan 20222 min read

In this digitalized age we all expect more from our technology, including from our payment services, which is why instant payments are becoming more and more standard. Instant payments are digital payments that are processed in real-time, every day of the year, with the funds immediately available to recipients.

Instant payments are a far faster payment option than the previous bank to bank payments which took one to three business days.

Instant payment processing offers numerous benefits:

  • Uses digital online technology in mobile apps or online payment service websites, so users can make payments without any physical interaction.

  • Payments take just seconds to complete.

  • Funds are available to recipients almost immediately – a benefit to cash flow management, and a bonus for when time-sensitive payments are required.  For example, when a consumer has to quickly avoid going into an overdraft, or for increasing cash on hand for a small business.

Instant payment processing systems

There are three distinct, official systems for instant online payment, each pertaining to a geographic region:

  1. Instant payments for SEPA (Single Euro Payments Area)

  2. Faster payments for the UK

  3. Real-time payments for the US

Let’s look at these regional systems in more detail.

Instant Payments and SEPA Instant Credit Transfer

Instant payments can be processed in seconds and are transferred directly from one bank to another. The payer and the payee are immediately notified of the transfer, and the process is completed in 10 seconds or less. Instant payments are available at any time and are capped at 100,000 euros. They are single payments and each transfer, once complete, is irrevocable. All payments are processed in euros and these payments are available in SEPA countries only.

Faster Payments for the UK

The UK Faster Payments Service (FPS) was introduced into the UK in 2008 by Pay.UK, the UK’s leading retail payments authority. This payment solution provides instant online payment 24/7 with transactions completed in under two hours and confirmation issued in 15 seconds. FPS covers:

  • Scheduled transfers

  • Direct debits and bulk payments

  • Single payments

Payments can only be processed in GBP, and transactions are capped at £250,000, but participating banks can implement lower limits if they choose. As with SEPA, Faster Payments cannot be reversed once actioned.

Real-Time payments (US)

Real-Time payments (RTS) are available at all times and have a 35,000 USD transaction limit. RTP delivers instant payment processing as well as enables participants to send messages to each other. All kinds of participants can make Real-Time payments, including companies, public authorities and consumers, and the system, launched in 2017, is available to all payment providers.

Instant global payment systems

The three different payment solutions discussed above can only work if all the ordering banks and beneficiary banks are connected to the system. Each clearing network is confined to an individual infrastructure, so these payment systems are not capable of processing global payments.

To meet the needs of companies who need to make an instant global payment the SWIFT network has stepped in. SWIFT enables fast payment across borders with around half of all SWIFT gpi payments credited to beneficiaries within 5 minutes.

Instant payment gateway for one-off payments

Instant Bank Pay is a system that provides instant bank-to-bank payments. Payers and recipients get confirmation in real-time, and there’s no requirement to enter card details. With GoCardless, customers can simply add Instant Bank Pay to their checkout or send a link to a customer with a payment request.

Instant payment gateways like GoCardless, that are able to offer instant payments, provide customers with added value by offering them immediate access to funds, as well as enabling them to get paid faster. This avoids customers having to rely on costly financing options to keep them afloat. Plus, it helps businesses and individuals quickly move funds to and from their accounts and stay on top of payment deadlines.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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