At the centre of the rapidly evolving payments landscape are real-time payments (RTP). With the ability to clear and settle transactions within seconds, even on weekends and holidays, RTPs are gaining traction globally given their popularity with businesses and consumers. They are particularly popular in countries like India, Brazil, China, Thailand and South Korea, which are not only leading the way in instant payments but are also making significant strides in digital payments in general.
While the world’s largest economy, the US, has been slow to adopt real-time payments, the US Federal Reserve is rewiring the US payments system by launching FedNow, the nationwide real-time payments network that is expected to start operating in July 2023.
To ascertain the interest of the real estate industry in adoption of real-time payments, PYMNTS and The Clearing House collaborated to produce the survey report Corporate Changes in B2B Payment Practices: The Future of Real-Time Payments in Real Estate.
Between December 16, 2022, and January 12, 2023, 125 executives were surveyed at real estate companies with at least US$100 million in annual revenue. The survey gathered information about the payment methods used by companies for their business-to-business (B2B) transactions, as well as their interest in integrating RTPs into their payment systems.
Real estate companies rely heavily on legacy payment systems
According to the report, “While just 1% of real estate firms currently use real-time payments, 90% plan to adopt real-time payment solutions to receive payments and 77% plan to adopt these solutions for making payments in the next year.”
Despite instant payments benefits, obstacles to their adoption remain, with the foremost challenge being legacy IT infrastructure. Given that most real estate companies rely heavily on legacy payment methods, six out of 10 (62%) “Cited the difficulty of replacing or updating legacy IT systems” as a major barrier to real-time payments adoption.
The perception of high costs associated with making real-time payments (60%) and the difficulties encountered in tracking payments (60%) followed closely as hurdles to adoption of immediate payments.
The PYMNTS research also reveals another major impediment to the widespread acceptance of instant payments by real estate businesses – a limited number of their vendors and suppliers use RTPs to make (40%) and receive (41%) payments.
To forge strong vendor and supplier relationships, real estate companies often adopt payment methods that are likely to be accepted by their partners. This view is corroborated by a key finding of the survey in which 87% percent of US real estate firms observed that “Vendor and supplier relationships are very or extremely influential in shaping their decisions on B2B payment methods for making payments”, and 91% said the same for receiving payments. Successfully surmounting this limited usage obstacle will be crucial for the broad adoption of RTPs.
Furthermore, the PYMNTS study mentions that most real estate businesses would need to significantly improve their payments infrastructure in order to effectively transition to real-time payments. Specifically, 70% of companies need to move away from batch payment systems toward real-time payments and processes, 60% need to modernize their back-office ecosystem and 51% need to educate their staff on real-time payments systems.
Cheques, standard ACH and debit cards most likely to be replaced by real-time payments
“If real estate executives are correct, real-time payments are poised to send the old-fashioned paper check into retirement for good”, the PYMNTS report noted.
The survey data shows that most real estate companies expect RTPs to displace existing payment methods such as cheques (checks), standard ACH and debit cards for making and receiving payments.
As per the PYMNTS survey, “Eighty-four percent of real estate firms believe real-time payments will replace checks for making payments, while 77% say the same for receiving payments. Sixty-five percent of respondents think real-time payments are positioned to replace both standard automated clearing house (ACH) and debit cards as a method of making payments.”
Speed, security, convenience, reliability and efficiency are some of the major factors that lead real estate executives to indicate RTPs as the “go-to method” for making and receiving payments over check, standard ACH and debit card.
To a lesser extent, real estate respondents feel the same about RTP’s ability to replace cash (29%) and credit cards (23%) for making payments. “These figures would still represent a substantial erosion of market share for these payment methods in favor of real-time payments”, the survey noted.
Of all the payment methods, real estate executives anticipate that same-day ACH will be the least likely to be supplanted by instant payments. Only a small percentage of real estate firms – 7% for making payments and 5% for receiving payments – indicated that they foresee such a scenario. However, according to PYMNTS survey data, same-day ACH is expected to grow over the next year, with 30% of real estate companies planning to increase its use for making payments and 21% for receiving payments.
To conclude, the real estate sector is recognizing that traditional payment systems no longer provide the most robust foundation for fostering business relationships. Embracing instant payments solutions as a compelling alternative that enables up-to-the minute transaction histories, greater convenience and real-time account balances will require extensive payments infrastructure overhauls. Doing so will help in shaping the industry’s B2B payments landscape. If they hold off on making the change, the real estate sector will continue to be “Left waiting for the check to clear”, says the PYMNTS report.
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