Businesses and individuals are always going to need to get paid.
That’s why the context around that payment, whether it’s speed, experience, convenience, personalization, cost, security or a combination of them all, is where the greenfield opportunity lies for payment industry players to differentiate themselves.
And instant digital payments are increasingly emerging as an attractive way for firms to both grow the payments pie and enjoy a bigger slice of it themselves.
But for instant payments to turn into an instant success, the scalability of their applications needs to be use-case dependent.
After all, the way payments are processed more broadly has undergone a remarkable transformation in the past few years alone, moving away from clunky legacy methods toward streamlined digital ones. Within this landscape, instant payments have emerged as a potential game-changer, redefining the dynamics across business-to-consumer (B2C) and business-to-small-and-medium-sized-business (B2SMB) transactions, as well as having an impact in peer-to-peer (P2P) transactions.
The businesses that adopt faster payments will have a competitive advantage, thanks to the customer satisfaction, revenue and operational efficiencies they can bring — but instant payments also bring with them new challenges, and safeguarding against faster forms of fraud will be of paramount importance as instant payment schemes mature.
Instant payments are transactions that occur in real time or near-real time, ensuring that funds move swiftly from the payer to the payee. This is in stark contrast to traditional payment methods, such as checks or bank transfers, which can take days to clear.
The digital age, with its advanced technology and connectivity, has paved the way for this revolutionary change in payment processing, and it holds exciting potential for areas like the small and medium-sized business (SMB) space where delays in getting paid can be deadly and access to cash is crucial.
SMBs often struggle with late payments from customers, causing cash flow issues. Instant payments can help mitigate this problem, ensuring that funds are received promptly and without delay and allow Main Street firms to streamline their financial operations, as they no longer need to spend time and resources chasing down late payments or managing cash flow disruptions.
A more consistent and predictable cash flow also enables SMBs to allocate resources more efficiently and invest in growth initiatives.
And instant payments exist and have successfully penetrated the market in other regions, where regulatory mandates have accelerated their adoption. In the U.S., at least for now, the primary growth engine of the innovative payment scheme has been market driven.
Still, for many businesses who have structured their working capital and cash flow forecasting strategies around the legacy settlement times of money movement, moving to an always-on payments environment may seem like an intimidating transition.
“What we’ve seen over the last few years is a real explosion of payment methods globally,” Nathan Salisbury, managing director of Worldline Payment Orchestration, told PYMNTS, which adds complexity — and drains resources — as merchants try to offer the payment methods their end users want.
While there exist complexities in bringing instant payment schemes more fully into the fold for businesses, there are also many benefits.
The goal of instant payments is to replicate the convenience of cash transactions, where funds are immediately available, and across B2C areas like bill presentment, requests for payments and earned wage access, they offer an appealing (and literal) right-now use case.
PYMNTS Intelligence finds that 7 in 10 consumers (70%) say faster payments drive greater satisfaction with their financial institutions (FIs), and an upstream impact of that fact may be that soon, corporate treasurers who find that their FI doesn’t support fully instant send-and-receive capabilities could likely switch providers.
In today’s environment, “user experience matters,” Reetika Grewal, head of digital for commercial banking and the Corporate and Investment Banking at Wells Fargo, told PYMNTS. “Clients don’t come in and say, for example, ‘I really need to make an ACH, SEC code, PPD transaction.’ They just know they need to pay a person.”
That situation will only be more true tomorrow.
As David Watson, CEO of The Clearing House, told PYMNTS, on a scale of 1 to 10, “In terms of the capabilities [instant payments] can offer, we’re at about a seven. In terms of the take-up, the use and the explosion of those payments, we’re at about a one or two … It’s a long journey to change an infrastructure and a settlement model.”