December 29, 2021Payroll

Real-time payments for workers explained

In the age of ubiquitous connectivity, lightning-fast networks, and on-demand everything, workers and contractors are increasingly frustrated by slow payments. Unfortunately, more than two-thirds of workers are forced to wait at least two weeks to collect the money they’ve earned, with nearly one-third getting paid once a week. 

For the vast majority of workers, even weekly pay isn’t fast enough. According to a recent report, more than 80 percent of workers between the ages of 18 and 44 want to get paid automatically at the end of each shift.

To meet these expectations, more and more smart businesses are implementing instant pay solutions, which give workers access to their earnings soon after a shift is complete.  For this reason, it comes as no surprise that PYMNTS research revealed that 72 percent of businesses are “extremely” or “very” interested in real-time payments.

What are real-time payments?

One of the tools enabling instant pay options is the real-time payments network. Like the name suggests, real-time payments enable one entity to electronically pay another entity immediately, or close enough to it. RTPs can be made via multiple channels, including smartphones, digital wallets, and websites. Once payment is made, the recipient receives funds instantly.

As demand for real-time payments continues to rise, it comes as no surprise that the global RTP market is projected to grow rapidly over the next several years. According to Grandview Research, the market will generate $13.54 billion in 2021 and is poised to grow 33 percent annually through 2028, when it will reach $99.73 billion.

As a recent report by Deloitte reveals, there are four steps to the real-time payment process:

  1. A sender authorizes a payment
  2. The funds are posted immediately to the recipient’s account
  3. The two financial institutions involved in the transaction settle obligations instantly
  4. Payers and payees are notified when the transaction is complete

In order to facilitate real-time payments, networks must be highly available and always accessible, 24x7x365.

It’s worth noting that, while similar, real-time payments are not the same thing as payments made through apps like Venmo (which absolutely shouldn’t be used for payroll!). While Venmo users can send funds to other users instantly, those funds must remain in the Venmo ecosystem for payments to be made in real time. If a user wants to use their funds outside of Venmo, they’ll generally have to transfer them to their bank account, which can take a few business days for funds to settle.

Real-time payments vs. ACH: What’s the difference?

While real-time payments and payments made through the Automated Clearing House (ACH) network are similar, they have their share of differences.

For starters, funds sent via ACH deposit might take as long as three days to clear. That’s compared to funds sent via RTP, which clear in real time. What’s more, ACH transactions are batched and sent all at once at the end of the day. On the flip side, RTP transactions are each settled on an individual basis. While ACH deposits support pulling money from accounts and pushing money to accounts, RTP platforms generally only support the latter (i.e., crediting an account).

Additionally, The Clearing House manages the RTP network, and the National Automated Clearing House Association (NACHA) manages the ACH network.

Real-time payments: Participating banks

While real-time payments are still relatively new, 70 percent of all U.S. bank accounts are currently connected to the RTP network. Already, nearly 150 financial institutions have signed up to participate in the RTP network, and since folks are increasingly interested in real-time payments, we can only expect this number to rise in the future. 

In addition to a slew of smaller and regional banks scattered across the country, here are some of the more well-known participants in the RTP network:

  • Bank of America
  • Capital One
  • Citibank
  • JPMorgan Chase
  • Peoples Bank
  • TD Bank
  • US Bank
  • Wells Fargo

To see which banks in your region are part of the RTP network, check this out.

The state of real-time payments

Though real-time payments are growing in popularity and are increasingly demanded by the public, RTPs still have a long way to go in terms of becoming widely adopted. But in our fast-paced digital world, it seems all but guaranteed that real-time payments will become the norm in the not-too-distant future.

After all, workers increasingly want faster pay. If you’re building products that include worker payments, leveraging faster ACH networks (like same-day ACH) or tapping into real-time payments will keep you on the cutting edge of what’s possible.

If your organization is unhappy with your current payroll solution, you may want to consider looking for flexible payment platforms that give you the ability to pay your team on the cadence you prefer — even as fast as the same day. Here’s why.

Meets worker expectations

First things first: More and more workers and contractors expect to be paid faster. By offering same-day payment capabilities, you’ll meet worker expectations, keeping your team satisfied and engaged for the long haul.

Helps workers avoid predatory loans

In an age where two-thirds of workers are living paycheck to paycheck, fast access to money can be a godsend. When workers have to wait two weeks to get paid, they’re more likely to turn to vehicles like payday loans and earned wage access (EWA) apps — both of which cost money (though EWA solutions are not as cost-prohibitive as payday loans).

Assuming you don’t want your workers and independent contractors running into severe personal finance problems, offering faster payment is a no-brainer.

Helps your business stand out

If a would-be worker has a choice between two companies that were the same with one glaring difference — Company A, which pays workers every other week, and Company B, which pays workers every day — which do you think they’d prefer working for?

By accelerating payments to workers and contractors, you can help differentiate your business from the competition, making it that much easier to win the war for talent in today’s difficult job climate.

Makes life easy for your payroll team

The right modern payment solution makes life easier for your payroll team. Instead of processing massive batches of payroll at once in a time-consuming process — and using a separate platform to pay full-time employees and process independent contractor payroll — payroll admins can process smaller payments for both W2 and 1099 workers rapidly and from the same place.

To learn more about how offering same-day payments can drive competitive advantage and help businesses like yours get to the next level, check this out.