Jon Budd, CEO of Juniper Payments, a PSCU company, said instant payments, over the long term, will see a blossoming of use cases and demand from financial institutions’ corporate and consumer clients.
As it stands now, only about 3% of financial institutions have signed on to the FedNow® Service, although The Clearing House’s RTP® Network has been around for six years.
But as more FIs join, Budd said during the latest installment of the “What’s Next in Payments Instant Payments: What Will Turbocharge Instant Payments Growth in 2024?” series, for instant payments to gain critical mass, “a lot is going to rely on further education to consumers and businesses.”
Consumers have gotten used to apps and other means of sending money that at least give the perception that funds are being sent and received in real time (most visibly with peer-to-peer platforms), he said.
There’s likely to be an “uptick” in the use of instant payments with businesses that might be relatively more sophisticated than their enterprise peers in understanding how different rails can be used for different payments, he said.
That’s especially true with larger purchases like those associated with forward-thinking firms in verticals such as real estate and loan disbursements.
We’re headed toward a future where, hypothetically, a financial institution’s customer might want to buy a car over the weekend, the FIs on each side of the transaction are closed, and no one wants to travel with the proverbial briefcase of cash.
“You cannot wire that money, and you don’t want to wait till Monday,” he said.
If the financial institutions are both tied to FedNow or RTP, the transaction would be feasible, and the keys and titles could change hands as the cash would be transferred instantly.
“The ‘aha’ moments like this are going to spread and go viral as new use cases pop up and solve problems,” Budd said.
There will be a snowball effect as new use cases develop and more FIs sign on to offer instant payments functions delivered through online banking channels, he said.
Fraud remains a concern, although Budd noted that since the phased approach of instant payments has limited faster payments to receive-only functions, those concerns are more muted than they otherwise might be, and transaction limits hold the payments to a $500,000 cap.
The real test will come as request for payment scenarios develop, and send functionality becomes increasingly real time in nature, he said. Verification is key on both sides of the transaction, ensuring that senders and receivers are who they say they are, and that they are legitimate account holders.
Artificial intelligence (AI) and machine learning will be potent weapons in breaking down and analyzing the risk across different silos of payments, from ACH to credit cards to debit cards, he said. They will also help in examining individual accounts and patterns of behavior to identify anomalies.
“This allows us a little bit of time to create some friction to make sure that payments are going where they are supposed to go,” Budd said.
Interoperability, messaging standards and ISO 20022 will foster opportunities for marketplaces and FinTechs to bring innovations to new markets. The same is true of FIs with instant payments embedded into their various products and services. Many of these firms have never considered connecting to the Federal Reserve system as a rail. That’s a long-term evolution, he said.
More immediately, and looking into 2024, Budd said that “low-hanging fruit” for faster payments includes gig economy payouts as workers will want to access wages as they are earned. Loan disbursements done in real time will also prove popular.
For auto dealers and lenders, he said, “this is where the market for instant payments is going to go first because that is what is going to drive new business.”
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