Catching the Rails: The Real-Time Payments Opportunity for Small FIs

While real-time payment rails have experienced a more gradual rise in the United States than internationally, their adoption is quickly emerging as a top strategic move in 2025. Experts note a closing window for banks seeking a proactive instant payments strategy as rails such as the RTP® network log record — and growing — transactions. For banks looking to pursue an early mover’s advantage in the real-time payments market, time is ticking down before the train leaves the station.

Instant payments ubiquity in the U.S. banking ecosystem has been elusive thus far. In particular, PYMNTS Intelligence research reveals that large financial institutions (FIs) are six times more likely than their smaller counterparts to deploy real-time payments. Smaller FIs cite various reasons for not adopting real-time rails, including concerns about cost, technical challenges and data security risks.

Despite these perceived obstacles, small banks and credit unions (CUs) arguably have the most to gain from implementing real-time payment rails. Expanding real-time payments gives consumers access to a wider network of receiving banks, making transactions more seamless and efficient. Even if smaller FIs hesitate to support sending instant payments due to cost and security concerns, offering the ability to receive these payments provides customers with significant advantages at minimal risk.

Large FIs Dominate Real-Time Payments Adoption

A Lack of Planning: A Key Obstacle for Small FIs

A Stepwise Approach: Overcoming Barriers to Real-Time Payments Adoption

The Real-Time Payments Imperative for Small FIs

Large FIs Dominate Real-Time Payments Adoption

Large FIs are currently dominating the real-time payments space, while smaller FIs lag behind. This lack of participation impacts customers across the entire financial ecosystem, limiting the ability of large FIs to send payments to smaller institutions.

Real-time payment systems are much less prevalent among smaller FIs — especially for use by consumers.

While seven in 10 FIs are currently connected to real-time payment rails, those banks with more than $10 billion in assets are six times more likely to have these capabilities than smaller institutions. Similarly, large FIs are three times more likely to be connected to the RTP network. Large banks also lead the way in providing real-time payment access to consumers and small businesses as well as large enterprise clients. Nearly three-quarters (74%) of FIs with regional or national footprints allow individual consumers to send instant payments, versus just 44% of CUs or local banks. By contrast, smaller banks and CUs, when they do offer instant rails, are far likelier to provide them for large enterprise clients than for consumers or small businesses.

59%

of mid-tier bank customers expect to boost their use of real-time payments in the coming year.

Experts argue that smaller FIs’ hesitation to adopt real-time payments is counterproductive, particularly for the small business clients they serve. Unlike larger enterprises, smaller businesses rely on steady cash flow and typically have less liquidity to accommodate slow payment cycles. Faster payments could provide much-needed financial flexibility and stability.

Mid-tier banks are pushing ahead with real-time implementation plans despite execution challenges.

A recent survey finds that 59% of mid-tier bank customers plan to increase their use of real-time payments within the next year. These institutions anticipate investing between $5 million and $20 million in enhanced payment technologies. In fact, all surveyed banks report plans to invest in payment technology over the next three years, with 76% indicating moderate investment and 24% planning significant investment. However, despite these clear intentions, the survey indicates that the execution of these plans is often unfocused or delayed. This underscores the urgent need for the right technologies and partnerships to successfully modernize outdated payment infrastructure.

A Lack of Planning: A Key Obstacle for Small FIs

While adopting real-time payments means big benefits for small FIs, the lack of a business plan for their implementation is hampering a surprisingly large share.

Small FIs hesitate on instant payments due to complexity, costs, security — and lack of implementation plans.

30%

of small FIs cite the lack of a clear business plan as a reason for not implementing real-time payments.

PYMNTS Intelligence data reveals that 30% of small banks that do not offer instant payments cite the lack of a pricing or business model as a reason. To put this into context, other key roadblocks for these FIs include integration difficulty and costs (cited by 35% and 29% of respondents, respectively) and a perceived risk of data theft and fraud (cited by 23% and 22%, respectively). Interestingly, 12% cited the lack of a business plan as the most significant roadblock, second only to concerns about data theft. This finding highlights the crucial need for FIs with fewer assets to undertake careful strategic and practical planning around instant payments as the first step to their adoption.

The cost of funds has also become a critical concern for small FIs.

A recent survey found that nearly 89% of community banks cited cost of funds as a critical external risk, up from just 48% in 2022. This challenge slightly surpasses regulation and net interest margin as top external risks. Rising funding costs appear to be largely driven by inflation, with 80% of respondents reporting that inflation has had an extreme or a moderate impact on deposit costs. Data from the Federal Deposit Insurance Corp. (FDIC) supports this trend, showing cost of funds rising to 2.85% in March 2024, up from 0.62% in December 2022.

The rising cost of funds is likely an important factor hindering community banks’ ability to offer instant payments. Only 9% of surveyed banks currently facilitate the ability to send real-time payments via the FedNow® Service, while 39% plan to offer it within the next year. However, more than half of the community banks have no plans to offer FedNow Service sending capabilities in the next 12 months.

A Stepwise Approach: Overcoming Barriers to Real-Time Payments Adoption

Although many small FIs shy away from offering real-time payment sending capabilities, they can still enable receiving capabilities to benefit their customers.

Smaller FIs stand to gain more by implementing instant payment capabilities.

PYMNTS Intelligence research reveals that 23% of large FIs believe that local and community banks are the biggest winners when it comes to offering instant payments. In contrast, just 16% of small FIs share this view. This discrepancy suggests that smaller institutions may be underestimating the potential advantages of instant payment technologies. Given their broader industry perspective, large FIs appear to recognize the significant benefits these innovations could bring to smaller institutions.

23%

of large FIs say local and community banks are the biggest winners when it comes to offering instant payments.

These benefits come from multiple sources. Ninety-three percent of FIs that offer instant payments report they have at least some positive impact on customer retention, a trend seen among both small and large institutions. Other key advantages for customers are improved security and efficiency — especially when compared to legacy payment methods such as paper checks. According to the research, 27% of large FIs say instant payments can reduce fraud by decreasing reliance on checks, while 18% highlight the advantage of eliminating check-related bank cutoff times.

Moreover, while smaller FIs may hesitate to navigate the complexities of sending instant payments, simply enabling the ability to receive them can provide meaningful benefits to customers, with significantly lower implementation obstacles.

Despite the challenges, many small FIs are rolling out instant payments.

New Mexico’s U.S. Eagle Federal Credit Union (FCU) recently introduced instant payment capabilities for its members, leveraging both the RTP network and the FedNow Service. According to a press release, U.S. Eagle FCU is the first credit union in New Mexico to offer FedNow Service. Meanwhile, Pioneer Federal Credit Union (Pioneer FCU) in Idaho has partnered with Payfinia to provide real-time payments to its members. Pioneer FCU noted that Payfinia’s Instant Payment Xchange (IPX) solution not only provides advanced instant payment features but also incorporates multilayered security measures to combat fraud.

The Real-Time Payments Imperative for Small FIs

Real-time payments offer significant benefits to small FIs such as community banks and credit unions. Implementing real-time payment solutions can help small FIs retain and attract business clients, as research shows that 79% of small businesses desire more payment options from their primary financial institution, and at least one-third would consider switching to a new institution to access real-time payment options.

While small FIs’ concerns about complexity and costs are valid, they can address these issues by partnering with third-party payment providers to handle the technical implementation. This approach can help mitigate the steep costs and complexity associated with overhauling legacy payment systems. A strong business plan that includes such a partnership can help small banks overcome initial hesitancy and take the first steps toward real-time payments transformation.

Finally, even if small FIs are hesitant about the potential liability of sending instant payments, they should still consider connecting to real-time rails if only to benefit from receiving these payments. By enabling instant fund receipt, these FIs can provide customers with immediate access to incoming payments, improving cash flow management and enhancing customer satisfaction. Offering real-time payment capabilities demonstrates a commitment to innovation and meeting the growing demand for faster payment solutions. This can help prevent customers from switching to larger banks or FinTechs that offer more comprehensive payment services.