Instant Payments Promise Better Consumer Experiences and Merchant Efficiencies

There’s a not-far-off future where plastic credit and debit cards will be less popular with rising consumer groups drawn to instant payments, and that’s OK with merchants, who will save on card interchange fees and slow settlement times.

PYMNTS research finds that over half (52%) of U.S. retailers and 56% of U.K. retailers accept real-time payments or plan to do so in the next three years, and with the FedNow real-time payment rail set to go live this summer, instant payments are ready for their close-up.

It’s evident in real-time payment schemes being championed by payment technology providers including ACI Worldwide, whose ACI Instant Pay product launched in January to capitalize on the trend, as real-time settlement creates greater liquidity for merchants while pleasing more shoppers.

“Settlement for the merchant will happen instantly,” Basant Singh, head of merchant payments at ACI Worldwide, told PYMNTS. “The benefit to the consumer is that there is another option for them, especially to the newer demographics like Gen Z and younger generations. They are very keen to adopt this kind of instant payment. This is the right payment option for them that fits their lifestyle.”

While much is being made of real-time demand among certain demos, merchants stand to benefit at least as much, as card interchange swipe fees exit the equation with instant.

ACI Instant Pay charges no interchange. “It is a flat fee of a few cents, that merchants will pay. Singh said, adding that chargebacks — which he pegs at 6 out of every 1,000 transactions, and 30% of that from stolen cards — also go away using the new system.

“You don’t have that issue with Instant Pay,” he said, nor a costly integration, as the system works using QR code scans that most merchants now support at checkout.

He added that “for every $100 chargeback, the net cost to the merchant is $240,” and with a reduction in these costs, merchants will ideally pass savings along to inflation-weary shoppers.

Read: ACI Worldwide Debuts ‘Instant Pay’ Ahead of FedNow Launch

Younger Demos and CEOs Want Instant Now

Launching Instant Pay first in the U.S. and then moving to other regions later this year, ACI is getting behind the instant pay concept big time as Gen Z and younger “Zillennial” consumers show an attraction to cardless digital alternative payment methods (APMs), with instant versions topping their lists.

“For the younger generations, the younger demographics, the analysis suggests that they don’t like plastic cards, and they prefer alternative payment like wallets and BNPL,” Singh said.

He also noted that “card tech is a legacy tech. This is a new tech, and it can be wallet based. It is instant, and that’s a benefit,” especially to consumers more desirous of instant experiences.

Citing the December study “Navigating Big Retail’s Digital Shift: The New Payments Strategy Evolution,” a PYMNTS and ACI Worldwide collaboration, Singh noted that CEOs surveyed showed a predilection for adding instant to meet consumer demand for operational savings.

“If you look at real-time payment in the U.S., the EU, the U.K., and France, their real-time payment growth is considered close to 22% CAGR [compound annual growth rate] by 2026,” he said. “If you look at India, India is the leader in real-time payments,” noting that on India’s UPI national real-time rail, “50% to 60% of transactions are happening in real-time payments, and it is growing.”

Further, he believes that if current real-time payment trendlines hold, the modality will experience 40% to 44% growth over the next two years.

Get the study: Navigating Big Retail’s Digital Shift: The New Payments Strategy Evolution

Riding the Adoption Curve

Even with the excitement around UPI’s success in India and high expectations for the long-awaited FedNow launch this year, there’s still a matter of adoption to contend with.

“If you look at PayPal, PayPal took around three to four years to get their name in and people to start absorbing, oh, there is a PayPal wallet you can use,” Singh said. “It’ll take time. It will not happen in a day or two, or a year, but it’ll pick up because that’s what every country is currently focusing on.”

He believes that as merchants become aware of the operational values of instant pay, “which we are seeing right now with our surveys and the kind of demand after launch,” it will entice more merchants to start offering Instant Pay, which will help with consumer awareness.

“I call it like an adoption cycle. There will be a demographic that will lead this adoption, and there will be a demographic who will eventually follow that, and there will be a set of people within that demographic who will be laggards” in real-time uptake.

Again, the hope is that as merchants begin to see interchange fees drop through increased use of ACI Instant Pay here and in other territories, it will put a dent in inflationary consumer prices.

That depends on how generous retailers feel about their savings on swipe fees and the faster liquidity offered by ACI Instant Pay and FedNow, to name just two systems.