Here’s Why Instant Payments Are Here to Stay

The time when instant payouts were a novelty is long gone, as the number of consumers, and increasingly businesses, that are using this rapid, simple payments method continues to rise.

In fact, new PYMNTS’ data shows that two-thirds of consumers reported sending or receiving at least one instant payment in the past year, not only marking a 7 percentage point year-over-year increase, but serving as a strong indication of what’s apt to shortly emerge on the business side of the instant payments shift.

Surprisingly, despite the rapid rise in instant disbursement adoption, the total number of transactions actually declined year over year, an anomaly IngoMoney CEO Drew Edwards told PYMNTS Karen Webster was likely a one-off dip due to the fact that a surge of government payments in 2021 had stopped.

“We don’t see growth going back [or reversing] across sectors,” Edwards said, affirming a short- and long-term bullish belief that the era of instant payments — and their best days — are still to come.

New Biz Converts

While some industries, like gaming, have been lagging in terms of instant payments adoption, recent activity in that fast-growing, digitally native space suggests that is changing too, and falling in line with the broader trend as evidenced by multiple online gaming companies have been introducing instant payments.

There are also demographic particulars worth studying. Where PYMNTS research has shown that digitally savvy young consumers prefer instant payments to same-day ACH, the inverse is often true for older, less digitally active individual. It’s a nuance that Edwards attributes partly to the fact that ACH “only operates five days a week, and is still batch based, and is still dependent upon time of the day.”

Compared to ACH, the 24-7 instant, mobile speed and ease of Venmo’ing $25 to a friend while you’re out to dinner makes a strong case for adopting instant payments as a way to attract new customers and earn their loyalty too.

Bridging Divides

Edwards also pointed out that older customers might be more comfortable with ACH because it’s more familiar to them, a reality that overshadows its relative slowness, as well as the reversible nature of the payments. It also clearly points to the importance that digital familiarity and comfort play, two traits that are as relevant to businesses as they are to consumers.

For younger consumers, “It’s PayPal, Venmo, or here’s my debit card,” Edwards said.

Even so, Edwards points out that businesses still need to provide customers a compelling reason to adopt an unfamiliar payment tool, such as added convenience. Even then, they still probably need to walk their customers through it.

Edwards was first convinced to try out PayPal after it gave him the option to deposit a paper check electronically.

“I didn’t want the money in my PayPal account. I wanted it in my Bank of America account. But before Bank of America had that functionality, PayPal had it,” he recalls.

Haves and Have Nots

To be sure, pinch points still exist. For example, Edwards calls wage access “one of the hottest categories” in instant payments. And yet, he said, they are still far from ubiquitous for workers who get paid through freelance platforms, even though he and others view this segment of the instant payments category as ripe for early adoption.

His only explanation as to why so many job platforms might not have switched yet is that freelance platforms tend to operate in multiple countries so implementing instant payouts can be more complex for them.

That may be the case, but Edwards points to his own company’s experience and the current surge in instant payments activity it is seeing by way of processing hurricane insurance claims and getting funds into victims’ hands as fast as possible.

Shifting Expectations

While instant payouts have become commonplace in big-dollar disbursement industries like insurance, Edwards said he expects FinTechs to roll back their free instant payout offerings.

For businesses looking to monetize their offerings, surcharges may become more of a reality as the uptake of the technology becomes more ubiquitous.

While companies like Uber and Lyft charge employees for instant payouts, some payment service providers might have a hard time convincing people to pay for a service that used to be free, “so many of these neobanks have boxed themselves into a no-fee marketing position,” Edwards said.

He believes that the evolution of instant payments might look similar to that of ATMs.

“They went through this cycle. At first they were all free. Nobody’s surcharged. Then everybody went to surcharging, and then everybody went back to free when we got to the competitive landscape.”

Whether or not — and how much — companies end up charging for the broader availability of this convenience remains to be seen, but one thing seems clear: Instant payments are very popular and they’re not going anywhere.