A new “real-time payment” system that could help consumers avoid late payments and penalties was officially launched last month and will be rolled out by the banking industry over the next three years.

Some banking customers will start to see a payment option pop up for what’s called “RTP” as they pay bills electronically from their online bank accounts. 

Faster bill payments are just one offshoot of this new system developed to serve a variety of banking and business payment needs.

With real-time payments, there’s no lag time between the moment you pay from your bank account and when the money is received and credited to your credit card, utility, or other merchant account as long as the merchant is part of the new network, according to The Clearing House, the association of 25 major banks that created RTP. 

That’s a change from existing systems operated by banks, such as Zelle person-to-person payments and ACH payments, which can take minutes, hours, or days to credit and complete transfers.

Banks like the efficiency, security, and certainty of real-time payments and up-to-the-second account information.

“The process of notification, funds transfer, and settlement all happens immediately,” says Steve Ledford, senior vice president for product and strategy at The Clearing House. “This eliminates the risk that the payment will fail or need to be reversed, and eliminates the risk to the banks and payment service providers involved.” 

Participating banks include BNY Mellon, U.S. Bank, Citi, JPMorgan, PNC, and SunTrust. There could be fees attached to RTP payments, says Michael Moeser, director of payments at Javelin Strategy & Research, a research firm. Other payment systems offer some free transfers, usually for nonbusiness transactions between people.

Here’s what to expect from the RTP system.

Benefits of Speed

Faster payments are a potential money saver. In 2016, U.S. consumers spent $12 billion on credit card penalty fees, 95 percent of them for late payments, according to R.K. Hammer, a credit card advisory firm. (Late-fee data for other kinds of bills were not readily available.)

Consumers will probably first encounter RTP as a feature of their online bill-paying system at participating banks and credit unions starting sometime in 2018. Banks will most likely charge a fee for the extra speed, as many do today for same-day service. That would be similar to fees for expedited delivery that an online retailer may charge vs. free standard shipping, Moeser says.

Customers of banks that have adopted real-time payments may also receive “requests for payment” from individual billers through their mobile banking apps, which will send a reminder about the impending due date and allow the consumer to authorize payment at the press of a button.

Lightning-quick payments could provide other benefits for consumers, such as:

  • An effective end to Monday to Friday “banking days,” because real-time payments can be made, received, and settled 24/7.
  • Employees in sporadic or hourly jobs getting paid as soon as their workday ends if their employer uses real-time direct deposit payment of payroll. Most other workers on regular weekly payrolls won’t see a difference.

Businesses like real-time payments because they immediately receive “good funds” from consumers and the other businesses they deal with.

The roll-out of real-time payments will be slow as banks and billers adopt the technology. By the end of 2018, more than half of U.S. consumers are expected to have access to such payments, but the technology won’t be commonplace until 2020, according to The Clearing House.

“Don’t get too caught up in the froth of this,” says Sarah Grotta, director of debit and alternative products advisory service at the Mercator Advisory Group, a consulting firm. “This is brand new and exciting, but when it gets down to how this will really impact consumers, I think it will take awhile to emerge.”

Watch for Fraud

With the greater speed of money comes greater risk of fraud. So watch out for scams.

Unlike credit card payments, real-time payments can’t be undone. Although consumers are protected from unauthorized real-time transfers and errors, they’re not covered when crooks trick them into authorizing a real-time payment, so-called victim-assisted fraud.

In the grandparent scam, for example, you might get a call from someone posing as a doctor or police officer on behalf of a grandchild who needs money fast for medical treatment or bail.

“Consumers must guard against these scams because there are no protections under the law for victims who authorize payments to scammers,” says Christina Tetreault, staff attorney at Consumers Union, the advocacy and mobilization arm of Consumer Reports.