PYMNTS Intelligence: Seeking Financial Certainty in Uncertain Times

The Clearing House - Real-Time Payments - June 2022 - Explore how real-time payments can help consumers maintain financial wellness

The Clearing House - Real-Time Payments - June 2022 - Explore how real-time payments can help consumers maintain financial wellness

Inflation climbed to 8.3% over the last 12 months, with the largest price increases seen in the areas of fuel and food.

Many otherwise financially stable households have seen their monetary cushions eroded by rising prices, and 64% of consumers reported living paycheck to paycheck in March, with little or no money left from their incomes after meeting regular expenses. That included high-income earners who make more than $100,000 per year, 49% of whom said they are living paycheck to paycheck. With consumer cash flows so tight, it is increasingly important for individuals to have predictability as to when they will receive payments and when money will leave their accounts.

One of the biggest concerns for consumers is paying bills, and this process is often a source of anxiety. Fifty-one percent of adults in the U.S. reported paying a bill late within the past year. For U.S. consumers with car payments, 28% said they have made a late payment and 15% said they frequently pay late. The numbers are similar for mortgages, with 27% having paid late and 15% saying it is a regular occurrence.

The Clearing House - Real-Time Payments - June 2022 - Explore how real-time payments can help consumers maintain financial wellness

Consumer payment models have been shifting toward faster payments, with some peer-to-peer (P2P) transactions even happening in real time from the consumer perspective. That shift has fueled demand for payments that can meet consumers’ real-time expectations, and those experiences are also creating a growing impatience with payments that take days — or longer — to arrive.

Instant payments can also offer help to those who struggle with late payments, both by ensuring they have funds in their accounts more quickly and by making it easier to make payments on time when finances are tight.

As interest grows in real-time payments, so does the need for improved understanding of what separates payments that are simply faster from those that are truly done in real time. Due to reliance on intermediaries for some payment approaches that are merely faster and not real-time payments, funds may take multiple days to process fully. This month, PYMNTS Intelligence examines the role that real-time payments can play in improving the financial health of payors, payees and the economy as a whole.

Realizing the Added Value of Real-Time Payments

Anxiety over paying bills each month has risen since the start of the pandemic, in part due to the highest inflation in 40 years. While there has been some decline in the number of consumers living paycheck to paycheck in recent months, overall the percentage of consumers from all income groups struggling to make ends meet is up since early 2021. At the same time, many consumers are still paying bills with legacy methods, such as cash and paper checks. Many of these consumers, however, particularly high earners, are still in a relatively healthy financial situation. They do not have extra money, but they are also not buried in debt. They may not have significant sums to spend, but they often enjoy relatively high credit scores.

Payees that enable real-time payments can assist their customers by making it easier for them to know exactly when money will be deducted from their accounts as well as when a payment is credited to them. Consumers do not have significant savings to depend on to ensure they have enough to cover payments regardless of when they go through. Being able to pay bills exactly when they are due without being concerned about late fees or missed payments can greatly reduce consumer stress. As consumers struggle to make ends meet, the overall effects can be cumulative, with each late or missed payment leading to a chain reaction of events that contribute to greater financial uncertainty across the board.

Payments That Meet Real-Time Needs

Sixty-two percent of surveyed consumers said they expect to be using faster payment options more extensively in the future, with respondents between the ages 18 and 34 indicating an even stronger inclination at 80%. Last-minute bill payment and recurring bill payments were near the top of the list of reasons for which consumers wanted to have the option of real-time payments, with the need to take care of bills when funds are available ranking as a significant factor. Consumers also want money coming into their accounts with that same speed and predictability.

It is not difficult to understand why consumers want to be able to receive payments in real time, but real-time payments offer plenty of value to those disbursing money to consumers as well. The most universal payor benefit comes from ensuring that payment recipients are happy, knowing that the payment is received by the payee through automatic payment confirmations, and that real-time payments can solidify relationships and improve payee loyalty. For lower-value transactions, real-time payments provide a more reliable solution than wire transfers when payments need to be expedited while also avoiding the associated fees. Payors can also realize benefits by using real-time payments in place of automated clearing house (ACH) and paper-check payments.

Payors and payees that offer real-time payment options can contribute to the financial wellness of the consumers with whom they work, promoting greater loyalty based on satisfaction with the transaction experience. By preventing consumers from falling into a hole of late payments and fees, they can also ensure timelier payments and avoid losing customers.