The Future of Real-Time Payments with Distributed SQL
The demand for real-time payments is steadily increasing across various sectors. These include marketplaces, traditional retailers, platforms that offer customized financial products, and platforms that facilitate the transfer of funds from non-banking entities.
This surge in demand, evidenced in the headlines of most payment publications, is driven by customers who seek:
- Speed—to meet their need for an immediate response
- Transactional accuracy—which requires transactional consistency
- Enhanced security—to mitigate risks associated with the irrevocable nature of real-time payments, which can lead to fraud
New use cases emerge every day, such as merchant settlement, bill payments, rebates, automobile financing, insurance claims and settlements, real estate closings, and the accelerated adoption of instant payroll for earned wages.
So, let’s delve deeper into the global rise of real-time payments.
To date, the adoption of real-time payments has been driven by growing consumer demand for faster, more convenient, and more secure payment options. The widespread use of mobile devices, which is revolutionizing payments on the go, has also contributed.
Real-time payments offer significant advantages—time and cost savings for consumers and improved cash flow and reduced fraud risks for businesses.
In some countries, such as India and Brazil, real-time payments have become the norm, while in other countries, like the United States, they are still gaining traction.
India is the real-time payments adoption leader. The Unified Payments Interface (UPI) is a real-time payment system that allows people to instantly send and receive money between bank accounts. UPI has been extremely successful in India, with over a billion users and more than two billion transactions processed every month.
Brazil has also seen rapid adoption, with Pix being an extremely popular real-time payment system. In less than three years, it has over 100 million users and processes more than one billion transactions each month (in Brazil alone!).
Real-time payments are still in the early stages of adoption in the United States. The Federal Reserve is actively developing its own real-time payment system called FedNow, set to launch in 2023 or 2024. FedNow will enter the market alongside real-time payment networks like Zelle and PayPal.
So, why has the US lagged behind? For three main reasons.
- The Clearing House’s real-time payments (RTP) network was launched only five years ago.
- The Fed’s offering was not fully and clearly defined
- Consumer demand remained strong for other instant payment alternatives.
With the maturity of The Clearing House’s RTP and the imminent rollout of FedNow, the infrastructure for real-time payments in the US is solidifying. As demand continues to rise, there is no doubt where the future of payments lies.
Figures from early 2023 highlight this increasing demand. 52 million transactions were recorded, valued at approximately $25 billion. This represents a consistent average growth volume of 10% for 16 straight quarters, except for a slight dip between Q4 2021 and Q1 2022. In addition, in September 2022, Zelle reported that they had processed in excess of $5 billion transactions in their first five years.
The global real-time payments market is poised for continued significant growth. Projections indicate it will reach $86-87 billion by 2028, growing to $123 billion by 2031. The widespread adoption of real-time payments in payroll processing, bill payments, and peer-to-peer transactions is driving this expansion.
Over the next 12 to 18 months, key areas of focus will involve maximizing the speed of payment systems and ensuring structured information and data transmission is compliant with ISO-20022 standards. These areas hold untapped potential that can be unlocked through the use of distributed database platforms.
Real-time payment systems need a core database that is fast (able to overcome latency and scalability challenges), resilient (so it never goes down), and can scale elastically (to process huge numbers of transactions per second when the inevitable spikes in transactional loads occur). Being cloud native aids in the building of technology stacks that support these offerings quickly.
Utilizing the right database presents an opportunity to elevate what is essentially a 21st-century communications network (that also happens to move money) and opens up exciting future possibilities.
To ensure the widespread adoption of real-time payments, addressing deployment and operational challenges related to flexibility, consistency, scalability, and availability is essential.
This is an ideal use case for distributed SQL. It enables the adoption of real-time payments and provides significant opportunities for financial institutions to differentiate themselves from competitors and meet evolving consumer demands.
The power of distributed SQL lies in four areas.
- Deployment flexibility. Many companies initially opt to “lift and shift” their existing database to the cloud. However, they may soon find the ROI unsatisfactory and realize they require a more flexible solution. To meet scale and availability requirements, they must be able to choose from different deployment options, like on-premises, fully cloud-native, or hybrid. This flexibility provides a strategic advantage, allowing them to adapt to evolving cloud vendor services and building consumer trust and confidence in real-time payments. By migrating to YugabyteDB, the payments workload can be seamlessly executed on-premises, in the cloud, or in a hybrid environment. YugabyteDB functions consistently across all deployment models, enabling rapid workload shifts and keeping you as agile as the environment you work in.
- Transactional consistency, especially in high-demand scenarios. A distributed SQL database like YugabyteDB has strong transactional consistency that eliminates the burden of managing consistency across geo-distributed transactional applications and eliminates the need to develop and maintain complex code. YugabyteDB is fully ACID compliant, offering consistency across multiple rows, shards, and nodes without compromising scale, resiliency, or performance.
- Scalability. A database that can effortlessly scale writes and strongly consistent reads across regions is crucial for widespread adoption of global payments. YugabyteDB allows you to increase storage and connections simply, eliminating the need for manual sharding or managing read replications. With automatic recognition and rebalancing of the data load, YugabyteDB is able to utilize all available resources without the need for specialized hardware. The result is high performance, low latency, and minimal effort for your global payment system.
- Availability. In the world of global payments, downtime is not an option. It brings devastating financial and reputational consequences. However, these are unavoidable in today’s cloud-centric environment, so the challenge is how to survive outages without compromising application and data availability. YugabyteDB ensures continuous availability even during infrastructure failures. Critical services remain accessible even in the face of node, zone, region, or data center failures. The database automatically heals itself and re-replicates data, enabling seamless failover and eliminating downtime during maintenance tasks such as software upgrades, security patching, and distributed backups.
YugabyteDB enables widespread adoption of real-time payments. It offers a flexible architecture, scales (up or down) horizontally to handle high transaction volumes, is resilient to both network and infrastructure interruptions, and provides robust security measures like encryption, authentication, and authorization to help you be perfect 100%of the time.
At Yugabyte we partner with financial services organizations and fintechs across the world to integrate their sophisticated architecture and ensure real-time payments success. YugabyteDB allows businesses to deliver exceptional user experiences and stay ahead in the digital landscape.
A: India and Brazil have experienced substantial adoption of real-time payments. India’s Unified Payments Interface (UPI) and Brazil’s Pix have gained immense popularity, with billions of transactions processed each month. The United States is catching up with the development of its own real-time payment system called FedNow.
A: YugabyteDB enables widespread adoption of real-time payments. It offers a flexible architecture, scales (up or down) horizontally to handle high transaction volumes, is resilient to both network and infrastructure interruptions, and provides robust security measures like encryption, authentication, and authorization.
A: Projections indicate it will reach $86-87 billion by 2028, growing to $123 billion by 2031. The widespread adoption of real-time payments in payroll processing, bill payments, and peer-to-peer transactions is driving this expansion.
Article written by: Richie Bachala