The Real-Time Economy: Definition, Benefits, and Prospects

What is a Real-time Economy?

A real-time economy (RTE) is a digital ecosystem in which transactions between different economic entities take place in real time or near real time. An RTE involves replacing paper-based business processes and administrative procedures with the automatic exchange of digital, structured, and machine-readable data in standardized formats^[1]

An RTE reduces the need for manual entry, transmission, and processing of data. Data moves between all exchange participants in a seamless, structured, and secure manner in real time^[2].

The primary goal of introducing an RTE is to alter the structure of the business environment and the ways residents and organizations interact with the state. Administrative activities can be carried out automatically in the background. This reduces the administrative burden on society and boosts economic productivity.

The real-time economy relies on basic technological infrastructure, including:

• Uniform data exchange standards and reporting formats.
• Integration interfaces and platforms for seamlessly exchanging data.
• Uniform information security principles for the data life cycle.

One of the most important steps in the transition to an RTE is the introduction of legally valid electronic document management (EDM). Electronic signatures, electronic tax invoices, electronic receipts and returns, and other types of electronic documents are key elements of the real-time economy.

The direct effects of introducing EDM include:

• Cost savings: consumables, paper, copiers, postage and transportation costs, storage of paper documents, maintenance of paper archives, copying and scanning documents, etc.
• Saved employee hours on manual data processing, going through documents, searching for the right documents, reusing documents, etc.

The indirect effects of EDM can include:

• Document workflows and service delivery are speeding up, driven by quick and efficient decision-making.
• Optimization of business processes related to document management, making them more transparent and improving control over all information flows and processes in the organization.
• Improved quality when working with information, the ability to perform new types of work or use new methods to perform work.
• Creation of a unified information space across the organization.
• Reduced risks of fines and penalties because of late submission of documents.
• Accelerated capital turnover.

The real-time economy is characterized by the development and availability of an extensive set of digital services for a wide range of users^[4]:

• Automated accounting, quality control, and auditing.
• Regular reporting, monitoring, and risk assessment.
• Machine-readable documents such as optical labels, electronic tax invoices, electronic receipts, powers of attorney, returns, etc.
• Electronic identifiers, digital signatures, electronic payments and purchases, and real-time forecasting.
• Accounting, taxation, reporting of assets, and much more.

Goals and Objectives of the Real-time economy

The real-time economy helps the state to improve decision-making and better interact with the public and businesses through:

1. Prompt provision of data. Data enters state systems as quickly as possible. Information is up to date when it is needed to support decision-making.
2. Unambiguous interpretation of data. Uniform principles and standards for presenting data are introduced. As a result, different systems interpret the same data in the same way.
3. Convenient data exchange. Data is transmitted in a human-readable form for potential users. To facilitate automation, open data is available through application programming interfaces.

Many states cannot fully use relevant data because they are often difficult to access, outdated, and non-standardized. Under these conditions, a lot of manual work is required to collect, analyze, and use data. Introducing a real-time economy helps solve these problems and reduces the bureaucratic burden on citizens, businesses, and the state itself. This happens as the following key principles are implemented:

• Comply with standards.
• Data on paper and in standard electronic formats should be machine readable.
• When collecting data, enter it once.
• Control data quality.
• Data should be open and accessible.
• Data exchange should be simple and secure.
• Seamlessly integrate information systems that create, transmit, and receive data.
• Reuse existing data and data formats as much as possible instead of creating new ones.

Benefits of Transition to a Real-time Economy

In an RTE ecosystem, the traditional practice of exchanging unstructured paper-based data is gradually replaced by the exchange of structured digital data in real time. This lets stakeholders quickly make better decisions. For example, regulators and investors can receive data to assess an organization’s performance for the previous calendar year as early as in January, not in the second quarter.

The real-time economy especially emphasizes the standardization of digital formats, integrability, and openness of data. By making fast information exchange fast and data accessible, it is possible to:

• Reduce delays in processes.
• Save resources and reduce transaction costs.
• Improve organizational efficiency and business competitiveness.
• Increase the speed and quality of decision-making.
• Increase business transparency and stimulate economic and social innovation.

The real-time economy eliminates unproductive interactions between businesses, citizens, and the government. Information and data are exchanged as quickly as possible, without unnecessary human intervention, reporting, or administrative burden.

From an entrepreneur’s perspective, the real-time economy helps free up resources and increase productivity. From the state’s point of view, it reduces risks associated with the shadow economy and tax evasion by improving the quality and reliability of data.

The real-time economy (RTE) makes automated administrative functions “invisible”, leaving more time for the core business.

The benefits of the RTE derive from essential data available in standard machine-readable and digital formats. In greatest demand are data for reports, registry excerpts, certificates, and public services. Let us consider the benefits of introducing a real-time economy for businesses, the government, and the people.

Benefits for Businesses

The RTE presumes that business processes and operations happen automatically and are documented in a standardized digital format, in real time, and with minimal manual human intervention. Processes become simpler, faster, and more transparent.

Organizations using real-time data get real-time information about the state of their business. This lets them use resources more efficiently and improves their planning and risk management processes.

The transition to digital transactions between business partners can increase trust and transparency for suppliers and regulators. For example, lenders can perform risk assessments quickly and improve their clients’ access to credit and financing. Goods suppliers and service providers can increase credit limits for sales made without prepayment, etc.

Benefits for the Government

Government agencies can use RTE data for automated document collection, reporting, and taxation in real time. This improves and streamlines government activities and enhances the quality of national statistics.

Tax documents used to calculate the tax base and amount of tax due (tax invoices, receipts, returns, etc.) are converted into a standard electronic form. Tax authorities gain the ability to introduce non-return-based tax regimes and reduce the administrative burden on taxpayers.

New data analysis and machine learning tools and technologies allow real-time analysis of various sources. For example, government and commercial databases, social networks, and IoT sensors. Constant monitoring and analysis of the country’s economic situation enable the development of more accurate forecasting models. For example, changes in government revenues and expenditures, the retail prices in the market basket of consumer goods, the need for targeted social support, the share of the shadow economy, and so on.

Open industry statistics allow more accurate comparisons of performance indicators and risks facing industries and individual organizations. Early warning systems can be developed for governments, industries, and organizations.

The transition to an RTE allows the application of the “Once Only” principle, meaning data is transferred to the government only once. The implication is that no one should have to provide information to state authorities if some public agency already has the information^[5].

Benefits for the People

People living in the country gain from the benefits mentioned above, because they receive higher-quality goods and services at lower prices.

• Government services become available in near real time. For example, citizens can get certificates and renew government documents immediately upon submitting a request.
• Electronic document management allows faster delivery of goods to consumers and lowers the cost of logistics and retail prices.
• Product marking lets consumers track the legitimacy and quality of products.
• With the use of electronic fiscal receipts, consumers may take part in promotions and earn cashback.
• Return-free tax regimes for the self-employed allow millions of people to come out of the shadow economy and gain access to credit, social insurance, and other services that require proof of income.

In the long term, the real-time economy’s advantages support the development of innovative business models and GDP growth. Indispensable opportunities emerge in interactions between organizations (the B2B sector). Especially in real-time supply chain management. In these areas, large companies should promote innovation, since they have a powerful influence on smaller players. The public sector’s role should be limited to regulation and providing the required digital infrastructure.

Barriers on the Road to a Real-time Economy

The following key barriers hinder the transition to a real-time economy

Technical Barriers

• Lack of shared and widely accepted data exchange standards.
• Differences in data content, syntax, and semantics.
• Problems with quality control.
• Incompatible information systems and applications. The need for integration.
• The need to update hardware and software.
• Communication problems that impede real-time data exchange.
• Differences in the digitalization level of entities in the real-time economy.

Organizational Barriers

• Citizens’ resistance and unwillingness to share data.
• Resistance and unwillingness of businesses and the state to comply with the principles of the real-time economy.
• Manual and outdated business processes. Inherited management principles and the information systems that support them.

Perceptual Barriers

• Conceptual complexity of the real-time economy.
• Conflicting perceptions of value between public and private organizations.
• Lack of a common understanding of the goals, benefits, and elements of the real-time economy.

Resource Barriers

• High cost of developing, deploying, and maintaining real-time economy solutions.
• High costs of re-engineering of business processes.
• Lack of resources for small and medium-sized businesses.
• Lack of experience in related fields.

Risks of the Real-time economy

The real-time economy’s future largely depends on public opinion. That means it is important to raise public awareness not only of the potential benefits but also of the risks associated with RTE solutions. We can highlight four major risks associated with the transition to a real-time economy.

Creation of “Big Brother”

The public earnestly fears that the transition to a real-time economy will allow the state to establish complete control over individuals’ lives and organizations’ activities if “Big Brother” will be created.

To mitigate this risk, the state must articulate precise, understandable, and economically justified rules for data creation, storage, transfer, and confidentiality regarding voluntary and mandatory data exchange. Data owners should be able to grant access to their data based on explicit consent; to see who has access to their data, and how and for what the data is used; and should be able to withdraw consent to use data that was voluntarily provided.

Safeguarding Data Transmission and Storage

Data standardization and openness are, on the one hand, the most important principles of the RTE. But they increase the risks and threats associated with privacy and security violations of individuals’ and organizations’ data. All real-time economy participants should pay extra attention to ensuring that data creation, transmission, storage, and use are secure, incorporating best practices and standards.

Excessive Standardization

Standards are the most important building blocks of the real-time economy. States should maintain a reasonable balance between the level of standardization and administrative interference that hinders innovation. Excessive standardization is often the result when governments or economic unions belatedly interfere in existing and widely used public and private standards. For example, for EU countries, the future harmonization of common cross-border standards will reduce excessive standardization at the level of individual member countries.

Formation of Digital Islands at the Level of Countries or Large Organizations

Real-Time Economy Vision 2020-2027^[6] showed that the transition to a real-time economy comes with the risk that isolated solutions will emerge that comply with the rules of a single country or that apply to individual organizations. Digital isolation is a growing problem in modern society. Consequently, the EU data strategy highlights the need to find a solution, and relevant activities have been planned.

Characteristics of the Real-time Economy

In an RTE, government agencies automatically access the data they need in real time. Reports and tax returns are no longer required in the traditional format. Special non-return-based digital tax regimes are possible, for example, via a mobile app for self-employed or small and medium-sized businesses. The app collects income data in real time, automatically calculates tax, and allows the amount to be automatically deducted from a linked bank card.

Real-time data exchange may require tax accounting principles to be adjusted. For example, VAT administration on an accrual basis can be replaced with a cash basis using special VAT accounts^[7].

In transactions between organizations (the B2B sector), exchanging electronic data and documents speeds up the negotiation, signing, and implementation of contracts. The result is lower operating costs, faster financial cycles, and a reduced need for working capital.

The standard view of accounting functions expands. In the real-time economy, accounting departments get reliable financial data faster. Using this data, they can not only keep records but also make highly accurate economic forecasts.

In banking, the real-time economy helps mitigate risk without overburdening employees. Information about financial transactions is available in real time with the consent of the data owners. There is no need for superfluous documentation or large-scale control measures.

In cross-border trade, the electronic documents required by customs authorities are generated automatically and sent to the border checkpoint ahead of the goods to avoid redundant data entry and labor-intensive checks.

In freight transport, electronic waybills available in real time speed up all kinds of checks. This makes for shorter and more predictable delivery times.

The real-time economy uses a diverse array of technologies, such as labeling genuine goods with digital codes, product tracking, and traceability, Internet of Things (IoT), transport and container monitoring, fiscal cash registers, big data, cloud services, artificial intelligence, blockchain, and many others. Solutions built on these technologies can optimize logistics and show a product’s journey to the buyer, allowing elements of the supply chain to track its origin and location. This lessens the risks of counterfeit product sales and empowers consumers to choose trustworthy suppliers and monitor the quality of the products they purchase.

Transition to a Real-time Economy

Many countries are implementing elements of the real-time economy. Their experience shows the importance of the following critical tasks when developing a roadmap.

Create Technical Tools and Standards

The state must improve data quality and availability and ensure that data can be exchanged between various parties (organizations, the state, and citizens) in real time.

To simplify and optimize business processes, data needs to be converted into a machine-readable form based on industry standards (ANSI X12, e-CMR, GS1, PEPPOL, WCO Data Model, XBRL GL, etc.), and the regulatory conditions and requirements for data exchange must be created.

To improve data quality, it is necessary to:

• Analyze the causes of why data have poor quality or are inadequate.
• Determine why necessary data is unavailable, including by analyzing the methods used for data collection and quality control.
• Clarify the actual need for data so as not to burden citizens and businesses with requirements to collect and submit unnecessary information.
• Conduct a semantic analysis of data fields and datasets (especially in interactions with the government) so that data collection at one agency accounts for the needs of different user groups. Collected data should account for the needs of other government departments, be up-to-date, and it should be collected according to the same classifications and standards.
• Establish a single taxonomy for data collection and exchange, considering best international practices and widely accepted standards, such as XBRL GL.
• Present and exchange data in the most automated and machine-readable format. The collected data must be up-to-date, complete, and structured. Use transparent methods for conversions and calculations.
• Create publicly accessible technical infrastructure and applications that allow machine-readable data to be securely stored and reused across systems, thus increasing the availability of data in private and public systems.

Regulate and Support the Transition to a Real-time Economy in Cooperation with the Private and Public Sectors

Business productivity goes up when the volume of manual operations goes down in interactions with counterparties and the state. A business environment that does not burden companies with unproductive work improves efficiency and reduces costs. Productivity gains occur when entrepreneurs channel the saved resources into more efficient activities. To introduce and implement solutions in an RTE, the state and society must:

• Make a fundamental decision to transition to a real-time data-driven economy that will support automated accounting, data transmission and storage, and better reporting.
• Involve leading experts in the working groups crafting the real-time data exchange standards, technical infrastructure, and governance models.
• Remove legal barriers to data exchange. Some countries have various rules that protect personal, commercial, tax, and banking data, preventing open use. For example, EU countries have the General Data Protection Regulation (GDPR) — a unified regulation that protects the personalized data of all subjects of EU countries^[8]. Necessary regulatory and legal changes should be analyzed and enacted to allow better and faster real-time economy solutions.
• Raise awareness and willingness to implement real-time economy solutions among organizations of all forms of ownership. Constantly analyze entrepreneurs’ problems and wishes related to various elements of the real-time economy.
• Prototype and pilot innovative RTE solutions that streamline business and reduce the administrative burden on companies.
• Conduct and publish research that shows how RTE solutions are for the state, business, and citizens.

Real-time Economy Solutions from Digital Tax Technologies

Digital Tax Technologies is an international expert in tax gap reduction and the digital transformation of national tax authorities. We help tax authorities around the world increase tax revenues and reduce the tax gap and the shadow economy’s impact. Implementing digital tax solutions from Digital Tax Technologies can speed up the transition to a real-time economy and reduce administrative costs for the state and taxpayers.

Our portfolio of digital tax solutions includes:

1. Development of the digital transformation strategy for tax authorities, including a concept for the transition to digital tax administration, as part of a real-time economy.
2. Digital VAT administration of retailers (B2C segment), including real-time fiscal data collection from OECRs (Online Electronic Cash Registers).
3. Digital VAT administration of the B2B segment with electronic VAT invoices.
4. Digital tax administration of the online economy and self-employed.
5. Digital tax administration of excise taxes, including consumer goods marking, tracking, and tracing.

Development of the Digital Transformation Strategy for Tax Authorities

Digital Tax Technologies helps implement tax reforms and make the national tax system more efficient by:

• Analyzing the tax gap and options for minimizing it.
• Developing a framework, strategy, step-by-step roadmap, and business plan for digitally transforming tax administration at the level of a country and/or economic union.
• Developing requirements and implementing digital solutions to make tax administration more efficient, reduce the tax gap, and increase tax revenues.

Digital VAT Administration of Retailers (B2C segment)

Fiscal cash registers in retail cFiscal real-time data on retail sales nationwide and help automate VAT administration. The solution’s key features are:

• Deployment of fiscal cash registers equipped with secure fiscal memory, which are used to transmit fiscal data in real time to the tax information system.
• Support for various types of secure fiscal cash registers to reduce compliance costs for taxpayers.
• Online fiscal cash registers are also available as cloud services to improve the fiscal transparency of service providers in e-commerce and cross-border trade.

Digital VAT Administration of B2B Segment

Digital tax administration helps identify VAT gaps, combat violations, and increases VAT collection by up to 150%. The essential features of this solution are:

• Mandatory electronic transfer of all tax invoices to tax authorities. Support for virtual tax invoices for VAT.
• Automated control, cross-checking data from sellers and buyers, detection of simple and complex tax gaps, and taxpayer notifications regarding detected violations.
• Automatic generation of VAT returns for taxpayers, or support for a non-return tax regime.

Digital Tax Administration of Excise Taxes

National systems for consumer goods marking, tracking, and tracing can boost the collection of excise taxes up to 700% for certain product categories. The major features of this solution are:

• Genuine products are marked with unique labels.
• Product tracking and tracing through a centralized system that records products’ movement through the supply chain from the manufacturing plant to consumers.
• Product authenticity is verified by scanning QR codes and comparing them against information stored in the system. In exchange for scanning codes, consumers get easy access to cashback, discounts, and gifts from manufacturers, retailers, banks, and tax authorities.

Digital Tax Administration of Online Economy and Self-employed

This solution brings millions of informal workers out of the shadows and boosts national tax revenues. A simple and clear tax compliance process for self-employed individuals is created, including access to social benefits. The key features of this solution are:

• A special non-return tax regime for the self-employed.
• Easy online registration and automatic tax administration for the self-employed through a mobile app that automatically calculates the tax bill based on income received.
• Integration with digital online platforms to record the income of their suppliers who use this tax regime.

To read more about Digital Tax Technologies solutions for tax administrations, please visit our website^[9].

[1] “Real-Time Economy: Definitions and Implementation Opportunities”, Tallinn: Tallinn University of Technology, 2019. URL: https://dokumen.tips/download/link/real-time-economy-definitions-and-implementation-opportunities-2019-10-10

[2] Real Time Economy Project. URL: https://www.yrityksendigitalous.fi/en/general-information-about-the-real-time-economy-project/what-is-meant-by-digital-economy/

[3] “Real-Time Economy Vision 2020-2027”. URL: https://realtimeeconomy.ee/visioon-ja-tooplaan

[4] “What is real-time economy?” URL: https://realtimeeconomy-bsr.eu/what-real-time-economy

[5] “Real-time economy of Europe—a Lithuanian perspective”. URL: https://www.realtimeeconomy-bsr.eu/news/real-time-economy-europe-lithuanian-perspective

[6] “Real-Time Economy Vision 2020-2027”. URL: https://realtimeeconomy.ee/visioon-ja-tooplaan

[7] For more insights, please read: Four generations of digital VAT administration systems. Anatoly Gaverdovsky. URL: https://taxtech.digital/2020/09/02/four-generations-of-vat-administration-systems/

[8] The European Data Protection Regulation “General Data Protection Regulation”. URL: https://gdpr-info.eu/

[9] URL: https://taxtech.digital/en/solutions/