Real-time Payments for U.S. iGaming

Accessing the Real Time Payments network is a watershed moment for U.S. iGaming. Here’s why.

In 2021 Nuvei was the first payments services provider to bring real-time bank transfer payouts to U.S. iGaming. This was a huge step-change in UX for players that were no-longer prepared to wait hours or even days for their transactions to complete.

Now deposits via the Real Time Payments (RTP) network are becoming a reality as well. Instant settlement means operators can instantly fund players’ accounts without taking on risk or incurring higher fees. Here’s why this is such an exciting development for the industry.

An introduction to real-time payments in the U.S.

The growth of real-time payments has been a dominating global payments trend for the past decade. Fueled by the introduction and expansion of regional instant payment systems such as Unified Payments Interface (UPI) in India, PIX in Brazil, and Faster Payments in the UK, the volume of instant payments (a near-instantaneous transfer of funds from one bank account to another – either C2C, C2B, or B2C – without an intermediary) is rapidly increasing. Globally, over 70 billion transactions were conducted via an instant payment system in 2020, and this figure is predicted to reach 199 billion by 2024.

Separate research estimates the global real-time payments market size to be USD 13.55 billion in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 34.9% from 2022 to 2030¹.

Much of this growth to-date has been coming from the Asia-Pacific region, with India and China dominating transaction volumes. In contrast, instant payments in the U.S. made up less than 2% of the global total volume of transactions.

Global instant payment transactions

Figure 1: Instant payment transactions are projected to reach 199 billion by 2024

However, this doesn’t tell the full story. The U.S. lagged behind other countries in the development of its instant payment system, with The Clearing House only launching the Real Time Payments (RTP) network in November 2017.

The first new core payments infrastructure to debut in the US for more than 40 years, the RTP network has grown quickly since, and is currently accessible to financial institutions that hold 75% of U.S. demand deposit accounts (DDAs). The network currently reaches 61% of U.S. DDAs.

61% of DDA accounts in the U.S. are already connected to the RTP network

Both the volume and value of transactions completed via the RTP network have steadily increased since the payment system launched, and more financial institutions connected to the network. In 2020 the total volume of instant payments in North America (including C2C instant payments systems such as Zelle) doubled between Q1 2020 and Q4 2021, and The Clearing House saw approximately a 200% increase in the volume of payments taking place over its RTP network.

Figure

Instant payment regional breakdown

This growth is being driven predominantly by two factors; greater connectivity to the RTP network and a growing preference for direct bank transfers by consumers and businesses generally.

Card payments still make up the overwhelming majority of transactions in the U.S. (121 billion card

payments took place in the U.S. in 2020 vs. 1.2 billion RTP transfers⁶) but the underlying trends causing the surge in instant payment adoption are growing, not subsiding. This is particularly true in specific industries where card acceptance rates are historically lower. So online businesses must

strongly consider how they integrate direct bank transfers into their checkouts if they haven’t done so already, and the changing expectations of their customer base when it comes to making these transactions in the future.

5The Clearing House 6GlobalData’s Payment Instrument Analytics

Figure 4: RTP Quarterly Payment Activity Q1 2020-Q4 20215

Figure 3: The total volume of instant payments doubled in North America in 2020

The difference between real-time payments and ACH

Today, many businesses in the U.S. offer bank transfer payments in their online checkouts via the Automated Clearing House (ACH) network, including online sportsbooks and gaming operators. This payment solution is the precursor to real-time payments, but there are several fundamental differences between bank transfers that are processed via ACH and RTP:

1. Time: ACH transactions can take as long as 3-5 business days to complete. Clearing is batched and payments are finalized intraday. With RTP payments the transaction is completed within seconds; clearing is instant and individual for every transaction.

2. Revocability: ACH transactions can be stopped by the sender after the transaction has been initiated. Transactions made via the RTP network cannot.

3. Confirmation status: Payments made via the RTP network are confirmed immediately once the transaction has been completed. The consumer also receives an immediate confirmation if the transaction fails. ACH payments are not confirmed at any point.

4. Availability: ACH payments are only processed during

hours. RTP payments are processed

What this means for the payments landscape in gaming

Deposits and payouts via bank transfers are already one of the most popular payment methods for players in the regulated U.S. online gaming, daily fantasy sports, and sports betting industries. And there are many reasons bank transfer deposits will remain popular with players in the future:

• Guaranteed acceptance: Where the U.S. gaming industry has faced challenges with card payments acceptance in some areas,

bank transfers have thrived. This includes both players whose preferred payments method is bank transfer and players that use bank transfer as a second preference when a card transaction fails.

• Convenience: After an initial deposit a player’s account details are tokenized, facilitating ‘single click’ deposits.

• Security: Bank transfers are considered to

be one of the most secure online payment methods, which is particularly relevant to gaming operators as many players are still unsure of the safety of their financial data in an industry that has only recently been regulated.

But despite the popularity of existing ACH-based deposits and payouts, it’s clear the introduction of the RTP network to gaming is going to have a dramatic impact on operators.

The impact of the RTP network on deposits

There are two traditional models for accepting bank account-based payments for iGaming operators and online sportsbooks in the U.S.. This is because once the deposit is made the funds become immediately available to the player despite the transaction between the player’s bank account and the operator taking hours or days to be settled. There is therefore a risk associated with this time lag that the transaction will be declined that must be allocated by one party. This is the fundamental difference between the two models, and because each is attractive to different types of operators both have gained a level of traction in the market.

Guaranteed deposits

In this model the liability for declines, including non-sufficient fund declines, lies with the payments services provider (PSP), the operator doesn’t take on any risk associated with these transactions. This may be preferable to operators that do not have sufficient risk management functions and teams in place internally and want a more simplified relationship with their deposits, but the risk profile is set by the PSP and is inevitably stricter, meaning more transactions will be declined. The cost-per-acquisition (CPA) is therefore also higher, lowering the lifetime value of the average player.

As the PSP also absorbs the risk, fees are also more costly per transaction.

Non-guaranteed deposits

In this model, the operator does absorb the financial consequences of accepting transfers that are subsequently declined or found to be fraudulent, so it is important that it has the internal structure or third-party relationship in place to do this effectively.

However, the big advantage of non-guaranteed deposits is that individual operators can set their own risk tolerance for payment acceptance, and this can be relative to its risk capabilities. Whereas guaranteed payments is a one-size-fitsall solution for operators and necessarily strict by design as the PSP must limit its own exposure, the non-guaranteed payments model is flexible and customizable. This enables sophisticated operators to approve more transactions, including winning more new customers. This lowers CPA cost and increases average customer lifetime value.

Why very merchant needs a non-guaranteed payment option

Guaranteed transactions

Non-guaranteed transactions

UNIFORM

One approach to risk for all merchants

CUSTOMIZED

Individual approach to risk for each merchant

STRICT

Tighter restrictions and lower limits are employed for a risk averse approach

HIGHER

As a result of the tighter restrictions, new customers are more likely to be declined

FLEXIBLE

Tailored risk profiles and transaction limits to match a merchant’s risk tolerance

LOWER

As a result of the smart risk management system, new customers are more likely to be approved

LOWER

Cost to acquire a customer increaces, which lowers the lifetime value of the average customer

HIGHER

New customers are more likely to be approved, increasing the lifetime value of a customer

Why the RTP network ends the debate on guaranteed vs non-guaranteed deposits

Deposits made via the RTP network will pull the funds from the player’s bank account immediately through to their gaming account. This will eliminate non-sufficient declines from occurring after the transaction has been processed which account for 90% of declined transactions. This all-but makes the guaranteed deposit model obsolete as there simply isn’t the need to offset the risk and cope with the downside of a onesize-fits-all approach.

Additionally, the good funds model also reduces fraud and fund return requests. Operators benefit from receiving a positive confirmation status to confirm successful deposits, improving market credibility and trust as well.

Payouts also are impacted

The influence of the RTP network is equally relevant for payouts, especially for players. In fact, much industry research suggests that the payout experience is more important to players when evaluating operators. Players want to receive their payouts immediately, and currently there are limited options to meet this expectation. Being able to demonstrate to players that they can offer the quickest, most convenient way for them to access their payouts is going to be a significant driver of player acquisition and retention rates.

The introduction of payouts powered by the RTP network does meet this demand; players no longer have to wait 24 hours or longer for their payouts to be visible in their account.

And it isn’t only the speed of payouts that make instant payouts attractive to players. Other benefits include:

• Deposit agnostic: Some payment methods are deposit-only e.g. prepaid cards. Leading bank transfer payments facilitators can verify the player’s bank account ownership outright, meaning instant payouts on the RTP network are deposit agnostic. Therefore they are an option for players that haven’t deposited this way but would like to receive their payouts directly or cannot payout using their deposit method.

• Passes the player acquisition test: Many firsttime depositors test the payout method before fully committing to an operator. An instant payout method will boost conversion rates by winning these players immediately, especially in-play bettors that are seeking to place wagers quickly.

• Payout convenience: Players’ account details are tokenized once they have made their first deposit or their first withdrawal. Once this has occurred payouts can be made using a single click experience.

• Positive confirmation status: Players don’t have to continually check their account to see if and when their payout request is completed, which can be another major drag on the overall player experience.

• Higher transaction limits: Transaction limits for payouts via the RTP network are higher than other transaction methods (although not higher than transfers settled via ACH) e.g. this can be as high as $100k for VIPs.

An instant future is in touching distance

So how close are we to full RTP network adoption? A universal RTP network is on the horizon, but we aren’t quite there yet so there is still a key role for ACH to play in player deposits and payouts. That is purely because not all banks (and therefore players) are connected to the RTP network. For example, at Nuvei currently 70% of our bank transfer payouts take place via an instant payment on the RTP network. This figure is purely limited by the players’ bank accounts not being connected to the RTP network.

On the other hand, ACH is universally accepted. Any payout requests that cannot be processed through the RTP network are therefore automatically re-routed through the ACH system as a fall-back option to ensure all players can still withdraw funds from their account through instant bank transfer.

70% of player payouts via Nuvei Instant

Bank

Transfer are transacted via the RTP network

it will be critical for operators’ costs and winning players.

But the lack of universal coverage of the RTP network doesn’t mean that operators have time to sit back and consider their next move when it comes to instant payments for deposits and payouts. It is only a matter of time before non-RTP network-powered transactions become obsolete, and being ahead of the curve instead of behind

Nuvei was the first payments services provider to bring instant withdrawals to the US iGaming industry through its Instant Bank Transfer product. We are now bringing instant deposits to the industry as well. Get in contact with us today to hear more about the impact the RTP network is set to have on the gaming landscape and how you can offer instant deposits and payouts to your players through a single, simple integration.

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Designed to accelerate customers’ business, Nuvei’s modular, flexible and scalable technology allows leading companies to accept nextgen payments, offer all payout options and benefit from card issuing, banking, risk and fraud management services. Connecting businesses to their customers in more than 200 markets, with local acquiring in 45+ markets, 150 currencies and more than 550 alternative payment methods, including cryptocurrencies, Nuvei provides the technology and insights for customers and partners to succeed locally and globally with one integration.

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Alex.Hammond@nuvei.com

Content Lead, Gaming and iGaming