There have been remarkable strides toward U.S. real-time payment adoption in recent years, driven by growing demand among businesses and consumers. As the long-awaited ubiquity of instant payments draws closer, the financial institutions that have yet to adopt this nascent payment method face tremendous downsides.

In a recent PaymentsJournal podcast, Justin Jackson, Head of Enterprise Payments at Fiserv, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the concerns many institutions have about instant payments support, the benefits of real-time payment adoption, and the steps institutions can take to stay competitive.

Real-Time Concerns

There are approximately 9,000 banks and credit unions in the U.S., and roughly a quarter of them are active in instant payments. While financial institutions are often separated into adopters and non-adopters, the actuality is a bit more complex.

“We often speak as though the other 75% are one homogeneous group that all look and think and act the same, but that’s not the case,” Jackson said. “They’re all individual businesses. They have their own strategies and their own goals and concerns. Each of them has factors that influence their decision of what they’re going to do with real-time payments.”

Some institutions are concerned about potential technology challenges when implementing instant payments. They aren’t sure about the magnitude of the change, its impact on operational processes and existing systems, and whether it will require additional staff.

Cost is another major concern for many banks and credit unions, as they worry that instant payments could introduce incremental expenses beyond their control. For example, if an originator were to come online and the volume of received instant payments increased by 10X or even 100X overnight, it could lead to unforeseen ramifications.

Additionally, many banks remain uncertain about the fraud risks associated with instant payments. These concerns—spanning technology, fraud, and cost—are weighing on institutions to varying degrees. However, as more organizations adopt instant payments, many of these worries will subside.

“They’re thinking through these concerns, and they are seeing what their peers and their colleagues are doing and they’re deciding that maybe it’s time,” Jackson said. “We’re nascent in the adoption of instant payments within the U.S., with FedNow being live for about a year and a half and we’re not even at a decade with the Clearing House’s RTP network. We have about 25% of the industry live and that’s tremendously fast for a totally new payment mechanism like this.”

Table Stakes: Powering Deposits and Efficiency

For all the concerns about adopting instant payments, the disadvantages are mounting for financial institutions that lag behind. Consumers have quickly become accustomed to real-time experiences, such as instant access to vast libraries of music and movies.

As these experiences become the norm, both consumers and businesses are increasingly perplexed as to why moving money still takes so much longer.

“Retail goods are an example that comes to mind, where you can order something on your phone and sometimes receive it the same day,” Tavilla said. “There is also the precision and the transparency with my packages, where I know exactly where the UPS guy is. But when you move your money, it takes multiple days, and you don’t have the precise information as to when and where the money is in terms of the process.”

The increased demand for real-time money movement means instant payments are becoming a table stakes offering for financial institutions. However, real-time payments are much more than an obligation—they are a transformative force that delivers substantial benefits.

“There’s one credit union that we worked with to take live on the instant payments networks,” Jackson said. “In the first couple of days after going live, incoming transactions hit the 1,000-payment milestone. After a few months, they got to the point where they were processing 10,000 transactions a month for their members, who were receiving these real-time payments from originators outside of their institution.”

The resulting deposit growth at the credit union was almost $60 million in net new deposits, simply due to taking their real-time connection live.

Other advantages of real-time payments are more efficient controls and better risk management processes. When an institution initiates a payment, it knows exactly what the balance of the account is. The financial institution secures funds instantly when its user makes a payment, and it can restrict unauthorized use of those funds. In addition, the bank doesn’t carry the risk that the funds aren’t there.

The institution is also immediately ready to process a payment at any time, and it is guaranteed credit. If a bank receives a transaction and posts it to an account, it doesn’t face the risk that comes with a return window of two to three business days, where a payment could be clawed back. This extra control is a significant benefit that isn’t available with non-instant payment methods.

There is also a less obvious benefit to the acceptance of instant payments: customer retention. For example, after many gig economy workers perform their food-delivery or ridesharing services for the day, they want to cash out their earnings immediately to pay for groceries or bills.

Many fintech companies that facilitate gig economy platforms have touted their ability to pay out instantly to attract talent. However, that real-time payment capability is only available if the worker’s financial institution supports it.

In some instances, if a contractor requests instant payment but their bank isn’t eligible, fintech companies have encouraged them to switch to a competing institution that supports real-time payments.

“That’s huge, when someone else is marketing against you and encouraging your customers to go to another institution because you don’t offer the service,” Jackson said. “That attrition risk is something that just kind of comes out of left field. It’s easy to solve for—just accept the instant payment—but it’s something that isn’t often thought about. It’s becoming more of a problem for the institutions that have decided not to get into instant just yet.”

Business Impacts

In addition to mounting consumer demand, recent research indicates that 90% of businesses consider instant payments to be important or very important.

“As a business owner, one of the things that’s most important is cash flow and access to working capital,” Jackson said. “The nice thing about instant payments is they are 24 hours a day. There is no availability window, they are seven days a week. There’s no weekends or holidays, they are 365 days a year. At any time, a business owner can receive or send a payment and know that within 15 seconds it’s available and it’s confirmed.”

These transactions could include payments to vendors and suppliers or incoming payments from customers or investors. Immediate access to money movement is tremendously valuable to business owners, as it increases efficiency. Business owners know exactly where their payments are, and once received, there are no exceptions—no two-day return window and no risk of a clawback.

Real-time payments allow organizations to use funds immediately and confirm that an obligation has been satisfied. They also give business owners more time to focus on running their company and serving customers.

“The improved customer experience that I get from my bank or my credit union as a result of the instant payment goes a long way,” Jackson said. “There is a lot of impact to the business owner by having access to instant payments and that is going to become more of a drag on the institutions that haven’t gotten into this space. Businesses are starting to think about where they bank based on the availability of instant payments functionality.”

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