Instant payments have quickly shifted from an emerging capability to a competitive expectation. Yet many financial institutions still struggle to justify the investment required to support them. With implementation costs, operational changes, and fraud concerns to address, it’s fair to ask: Are instant payments simply a customer convenience, or can they deliver meaningful business value?
In a PaymentsJournal Podcast, Shankar Jayaraman, Director of Product Management, Real-Time Payments at Fiserv, Rusiru Gunasena, Head of Business Development for Service Providers at The Clearing House, and Ben Danner, Senior Analyst of Debit at Javelin Strategy & Research, explored why that question may already have an answer. As consumers and commercial use cases continue to expand, the decision facing financial institutions is becoming less about whether to offer instant payments and more about how soon they can.
Clearing the Concerns
Despite the fact that more than 1,500 financial institutions now offer instant payments through either The Clearing House’s RTP network or the Federal Reserve’s FedNow Service, more than 8,000 still do not. For many of these organizations, the barriers to adoption remain significant.
One key factor is the challenge of making a bank’s payments and processes available 24/7. In addition to meeting customer expectations for around-the-clock service, financial institutions must establish prefunding requirements and ensure the proper risk controls are in place. Since instant payments are generally irrevocable, fraud prevention is a critical concern that must be fully addressed before transactions begin.
For legacy banks, older, multi-tier technology stacks may not be capable of supporting instant payments. Overhauling these systems can be daunting, especially when the same payment processes have been in place for decades.
Fortunately, financial institutions don’t have to navigate the transition alone. Experienced third-party service providers can handle operations such as transaction monitoring, error handling, risk mitigation, and fraud prevention, serving as a critical first line of defense.
“If you are the financial institution, you’re not the first one,” said Jayaraman. “There is already someone who has cracked the problem. And there are many solution providers out there who are there to help you solve the problem.”
Benefits of Joining the Network
Whatever the concerns about adopting instant payments, the benefits often outweigh the risks. Most financial institutions that implement instant payments find that the customer experience improves immediately.
“When a financial institution goes live on RTP, their customers discover that they can go and pull their funds sitting in a digital wallet into the institution account immediately,” said Gunasena. “They were even willing to pay to get those funds, because now they have liquid funds in their financial institution.”
Instant payments also help strengthen the customer relationship by bringing it back to the financial institution. In addition, they provide rich, structured data that supports analytics and more informed decision-making. Both sending and receiving financial institutions can gain better visibility into payment activity and can make more accurate risk assessments. Some banks have even identified new revenue opportunities by offering instant payment services.
“U.S. Bank launched an enhanced payment service for small businesses,” said Danner. “They’re charging to send those instant payments at a reduced rate through a subscription model to their small business service. As an issuer, this is a value add and a potential transaction revenue stream as well.”
The commercial banking sector stands to benefit as well. Corporate treasuries can receive guaranteed, liquid funds immediately, improving cash flow and financial flexibility.
Key Use Cases Emerge
New use cases continue to emerge. The federal government has begun using instant payments for services like tax refunds, emergency payments, and other disbursements. Gig economy workers can now receive their earnings the same day, enabling them to cover immediate expenses, such as fuel, and get back to work without delay. Major issuers such as TD Bank and U.S. Bank have also rolled out instant payment capabilities for their auto dealer clients.
Also on the horizon is Request for Payment, which has the potential to be a game changer by putting customers in control of authorizing the payment.
“Instead of ACH debit coming and swiping your funds out of the account, now the biller will send a Request for Payment through the secure banking channels,” said Jayaraman. “You are bringing your customer back into your digital banking experience, where the customer can validate that payment—who is requesting it, for how much, what’s the purpose. Then they can agree to or deny that payment.”
Making the Decision
Financial institutions that are still evaluating instant payments can ease into adoption by taking a phased approach. Start by identifying the most common and pressing customer pain points, then prioritize use cases based on those needs.
Many banks have found it effective to begin with receive-only payments. However, they shouldn’t stop there—customers will eventually expect to send instant payments as well.
“We should not read receive-only as the finish line, because receive is really how you get started,” said Gunasena. “To differentiate the customer experience, that’s where send comes in.”
Finally, choosing an experienced partner can help create a smooth path to implementation. There are many considerations that banks and credit unions may not anticipate, but a knowledgeable partner can help identify both potential challenges and new and opportunities.
Instant payments are becoming an inevitability, not only because of the speed they offer, but also because of the certainty, transparency, and enhanced customer experience they provide. Both organizations and consumers are discovering compelling new use cases across the network, transforming instant payments from a differentiating feature into an expected capability. As adoption continues to grow, instant payments are rapidly becoming a competitive differentiator.
“Your customers might not be asking for it, but it is a core capability you need to have as a financial institution to service your customers for their needs in your platform,” said Jayaraman. “Otherwise, they’re going to go somewhere else and get it done as well.”
