Where Instant Payments Is Headed — and Why

Amid the hype about the FedNow® Service approaching its one-year mark, instant payments may finally be settling down into more grounded territory, specifically, liquidity, competitive advantage and the customer experience.

Those factors were top of mind for Ingo Payments CEO Drew Edwards, who told Karen Webster in an interview that the groundswell in instant payments set in motion by FedNow may be abating a bit. However, a slew of new use cases is now accelerating faster payments’ momentum.®

The comments came in the wake of the latest PYMNTS Intelligence and Ingo Payments study, which found that there are several use cases where speed in payments is a need rather than a want.

“An instant push into a consumer’s bank account — whether it’s through the card or through RTP® or FedNow — is a better experience than cash,” Edwards said.

No one has ever raved about the customer experience they had getting paid slowly or having to accept a paper check, he added.

Some businesses are proving to be slow in coming around. Edwards offered the analogy that community bankers were once resistant to ATMs, arguing that no one wanted to go to a machine to get their money, and consumers preferred to go into a branch.

And then ATMs became a competitive advantage — and eventually a requirement.

The conversation came against a backdrop in which the number of consumers receiving disbursements is down a bit, which Edwards said has come because of the decline in people receiving government disbursements, a slide that happened as COVID-19 dissipated.

New Use Cases Proliferate

“With regard to the government payouts, we’re back to normal, and we’d consider the time of COVID to have been a surge or bubble in government payouts,” he said.

But beyond that headline data, the number of disbursements received by people overall is up in all use cases across government transfers. Instant payouts are regularly chosen by roughly a third of all consumers in the United States, and 78% of consumers would choose instant if given the option.

“There are all these sub-industries that are accelerating payments, like tax refunds, refund anticipation loans, earned wage access, or factoring in the trucking industry, and lending,” he said.

In short, any number of use cases where money is needed faster.

The Generational Divide

The data showed that older generations have a relatively higher degree of satisfaction with instant payments than their younger cohorts. Edwards noted, only slightly tongue in cheek, that the younger consumers may be somewhat spoiled with digital and speedy conduits when it comes to payments. They’re used to technologically driven financial services. With Generation X, baby boomers and seniors, there’s still more of a “gee whiz” factor afoot.

“The older generations can afford to pay for [instant payments],” he said. “And they … remember what it was like to wait on a check and then have the check bounce, and then they had to go ask for another one.”

The Opportunity for Corporates

The opportunity is there for corporates to serve the needs of their end users, where instant payments are a key choice that must be offered, Edwards said. But in doing so, companies need to re-examine how they think about payments beyond simply examining the costs of those payments.

“There are some settings where corporates are experimenting with ‘forced instant’ payments — where instant, and some fees attached, are the only options,” he said.

The hospitality industry stands out here. Restaurants have grappled with the vagaries of handling cash. When it comes to divvying up tips to workers and other payments, they have opted to embrace real-time rails.

“Cash has a cost not only to the restaurant but to the worker too … you get robbed once and you’ve lost an entire day’s pay,” Edwards said.

But, when it comes to corporates in general, “they’re all struggling to find new ways to create new revenue streams,” he said.

Optionality is a critical way of monetizing payments, said Edwards, who added that PayPalVenmo and Apple have proven that broad segments of the population have shown they will pay for payments choice.

Matching that choice with fee-based and free options gives consumers and businesses the menu of payments they need, especially if they need to get money fast rather than wind up in overdraft or go elsewhere to borrow it, he said.

The pain points of smaller firms are well-addressed by instant payments, especially ad-hoc, one-off transactions, he said. Seventy-two percent of small businesses’ receivables are only 30% of the payments made by senders. Larger buyers have the power to hang on to payments as long as they can.

“It’s important for the small business to be able to get that money faster,” Edwards said, adding that “the entire American economy rotates around small businesses.”

Even retail behemoths such as Walmart and Amazon are dependent on the financial health of smaller firms. There’s a growing interest on the part of smaller companies to be paid via digital wallet. Ingo Payments, by way of example, estimates that the percentage of payouts via PayPal is relatively small, at about 3%, but it is growing.

As Edwards told Webster of instant payments: “This is just the way it ought to be. There needs to be choice — fast choices, safe choices and simple choices. And this creates momentum for instant payments because who doesn’t want their money faster? It’s the future.”