Understanding Real-Time Payment
Processing
Gordon Smith
With more and more banks and billers looking to get in on the advantages of immediate
account updates, understanding both the value and challenges of real-time processing has
never been more important. Here are some guideposts.
Today’s consumers are quickly coming to expect immediate processing of their payments. Often times, the expedited payment is
necessary to initiate a service such as activation of a cell phone or to meet a payment deadline to avoid disruption in service or late
fees. Whatever the reason, it is clear that the demand for faster payment processing is on the rise.
Many companies that process a large volume of payments, such as utility companies, cell-phone companies, and major retailers, are
beginning to deliver on this growing customer requirement by offering payment services that provide the ultimate in speed and
convenience. From phone and Web payment options to walk-in payments, these billers are providing customers more choices than ever
and are implementing expedited payment processing, including real-time account updates.
It’s all in an effort to not only satisfy customers’ requirements for fast payments but also to capitalize on an emerging growth
opportunity.
Indeed, expedited payments may soon be the industry standard. However, there are important and intricate differences between
expedited payments and those that are truly real-time. Billers need to understand these differences.
More Control
What is real time? It refers to the instantaneous validation, acknowledgement, and transmission of transaction data between the point
of sale and the biller’s system. Different from “near real time,” which refers to expedited batches that may range from minutes apart to
an hour or even more, real time is truly instantaneous processing.
While the difference between the terms “expedited” and “real time” may sound minor, even a small increase in the time involved in
the processing of payments can have a significant impact on the consumer experience. For many businesses, it can add risk to the
payments process. Therefore, it is important to set real time apart and understand how it works.
Real-time payment processing tends to have data flowing in both directions. Transaction data are gathered from the consumer on the
phone, on the Web, or in person and sent to the biller’s system. Messages between the point of sale and the biller can be used to send
information, such as an account number and transaction amount, to the biller’s system to validate payment information or to allow the
biller an opportunity to accept or decline the payment while the consumer is at the point of sale. In addition, data such as payment
amounts may be pulled from the biller’s system to be presented at the point of sale.
Once the payment is completed, the data typically flow from the point of sale to the biller’s system. Whether they memo post, go
into the accounts-receivable system, or are routed to other parts of the system, this process is key to allowing the biller to take action
once the transaction is completed. Messages of a technical nature are used to acknowledge the receipt of data. These confirmation
handshakes ensure accuracy and recovery.
There are several payment applications that are currently using real time. These include walk-in payments for bills, stored-value
cards, and prepaid phones. Banks are also starting to offer real-time payments, typically on their bank-branded bill-payment
applications.
The benefits of real-time payments for consumers are obvious, but processors and financial institutions are also starting to
understand the profound value of providing real-time service to their customers.
“Real-time connectivity allows us to offer a much better customer experience and also enables us to better manage legal, regulatory,
and velocity limits associated with accounts,” says Dave Wilkes, head of strategic alliances for Galileo Processing.
Galileo, a processor for prepaid, debit, and credit cards, recently implemented its real-time interface. Wilkes says real time allows
Galileo to check that customers are in good standing before a transaction takes place.
Other industries, such as the prepaid phone market, appreciate real time for enabling more efficient activation of phones and for
providing a less costly way to add minutes.
One of the biggest benefits of real time is that it gives the biller control over payment acceptance, which is particularly important
in industries such as mortgage, property management, or others where accepting a payment can have serious compliance and legal
implications. Real-time validation reduces payment exceptions, which can significantly reduce costs and improve payment posting
accuracy.
While there are set-up costs associated with implementing real-time, there are tremendous cost savings that can be realized over
time. For instance, consider a utility company where a customer may be making a last-minute or “convenience” payment to avoid
service interruption. Prior to real time, the utility company may have had to go through the time and expense of dispatching a truck to
turn off service, even though the customer made the payment. Once the company received the payment, it would have to send the truck
back out to the customer location to turn service back on again.
Other benefits of real-time processing include:
Reduced collection costs. Payments come into the biller’s system, allowing collectors and dialers to remove those customers from
their lists.
Fewer calls to a biller’s call center. Customers no longer need to call to double check to see if the payment was received. The
check-is-in-the-mail ploy used by some consumers also loses its effectiveness.
Improved customer satisfaction. Beyond giving customers more choices, real time brings the ability to get value loaded to a card
or minutes added to a phone, which results in “stickier” customers.
Elimination of unnecessary costs. Prepaid and gift card billers can move away from J-hook card printing and toll-free activation
calls. These can be eliminated by collecting the information and processing payments in real time.
Challenges
With the growth of expedited payment options including real-time processing, billers and financial institutions face some challenges,
including how to offer and implement these services.
The first challenge is the decision to offer real-time payments in the first place. In making this decision, the biller or financial
institution needs to carefully evaluate its business needs for offering real-time payments. It needs to evaluate how real time fits with its
other payment methods and whether the service can reduce costs, improve efficiencies, increase cash flow, create a new revenue stream,
or improve customer satisfaction.
The bank or biller needs not only to look at the business case for doing real time, but consider if it is technically ready. Can it get the
payment information in real time to the point where it’s needed to be effective? If the system the institution is using only updates once a
day, does real time provide any value? If the system cannot do this, does the vendor have a tool that can help? These are just a few of
the questions that need to be answered in deciding to go real time.
The next challenge is to determine what exactly is needed out of real time. Does the biller or financial institution need real-time
validation of the account number, does it need the ability to accept or decline payments, or does it need real-time transactions sent to its
system? Sometimes the best solution is a mixture of real-time and non-real-time processes.
One of the biggest challenges with implementing real time is establishing the necessary secure and reliable back-end connections
and interfaces to billers’ systems. Critical to success is the cooperation of the biller and the payment vendor, specifically in determining
the application program interface (API), which is the source-code interface necessary for a computer system to support requests for
services to be made.
There are a number of ways this can be handled, with either the biller coding to the processor’s API or vice versa. Some vendors
may even provide software development kits (SDK) with the API, sample code, and other important project information.
Once the coding of the API is established, the next step testing the interface to make sure everything is in working order.
For instance, Galileo Processing had its own proprietary Web-services API, but when the company recently worked with
MoneyGram to launch real-time walk-in payments, both companies rigorously tested the new system to ensure a smooth roadway for
real-time communication. “There are so many touchpoints that need to respond in a short amount of time,” says Galileo’s Wilkes.
He says the entire testing process took about 60 days but was well worth the effort. Since establishing real time, Galileo has seen its
transaction volume increase significantly month to month.
Key Questions
These key challenges are just part of a list that banks and billers need to know when embarking on real-time payment processing. To
evaluate the real-time process even further, billers and financial institutions should ask themselves the following questions:
►How much will it cost to implement real time?
►How much will it cost to maintain real time?
►What is the back-up plan if real-time connectivity fails?
►How does the system handle minor or intermittent communication failures? Do transactions queue and how does it work?
►Is the transaction secure during the entire process and how is it secured?
►What if only part of the real-time process works for a particular transaction?
►How are real-time payments reconciled?
►What is the notification process when a payment is not received?
►Is there an acknowledgement process to ensure that data are received?
►Is a service-level agreement necessary? (The answer to this is easy: Yes!)
Once these questions are answered and the specific requirements and objectives are understood, billers and financial institutions
will be on the road to realizing all of the financial and operational benefits that real-time payment processing can provide.
Gordon Smith Jr. is director of product management for MoneyGram International. He can be reached at g.smith@moneygram.com.