Education and Regulation Define Real-Time Payments’ Inflection Point

Instant payments have been available across the payments landscape for years.

But what will it take for it to scale enough and successfully challenge the traditional payment methods most end-users are accustomed to?

“Education is going to be key for all the players in the payment chain,” Moa Agrell, senior banking partnerships manager at Trustly, told PYMNTS for the series, “What’s Next in Payments: Instant Payments: What Will Turbocharge Instant Payments Growth in 2024?”

That’s because, from consumers to merchants, understanding the benefits and features of instant payments is tantamount to their success, and Agrell pointed to the European experience, where tools and rules have been developed to ensure transparency and accessibility.

Educating users about features like payment irrevocability fosters a smoother transition from traditional payment methods to instant payments, she added.

“The transition moving from ACH to RTP and FedNow now here seems to be bigger, maybe, than moving from SEPA to SEPA instant, where really the only difference was speed of the transaction, while how the money moved stayed essentially the same,” Agrell said.

Of course, instant payments must provide real value to both businesses and individuals for their adoption to truly accelerate.

“Instant payment options need to be at least on par, if not better than non-instant options,” Agrell said.

Turning Instant Payments Into a Game Changer

Drawing again from her European background, Agrell noted that use cases for instant payments that develop can start to grow as open banking gets further traction here in the United States.

But as with most things, it is challenging to grow and scale a service, product or solution if potential users aren’t aware of its benefits or what it can do for them relative to existing alternatives in the market.

Open banking, coupled with instant payments, could lead to a more efficient and secure financial ecosystem, but education around their complementary synergies for both consumers and businesses is crucial, she said.

“Open banking is already big in the U.S. … what’s needed [and what’s happening] is regulation that makes sure the right providers and companies can connect into financial institutions’ APIs so that I, as a consumer, can share my data with whom I would like in a safe way,” Agrell said.

Potential upcoming regulations, while imposing limitations, she noted, also bring benefits such as enhanced data security and even the prospect of removing the bilateral agreements needed today between open banking platforms and financial institutions.

Interoperability is a key factor in the success of instant payments, not only domestically but also on a global scale.

Agrell suggested the idea of creating a middle layer between different instant payment rails, allowing users to access multiple systems without the need for direct integration. This interoperability could open possibilities for cross-border payments, offering a seamless and efficient experience for users regardless of their location. The potential for a more connected global financial landscape emerges, driven by the interoperability of instant payment systems.

Change Begets Change Within Existing Business Models

As instant payments become more prevalent, it is highly likely that the business models of financial institutions and non-bank enterprises might evolve in-step with the money movement option’s growth and adoption.

Agrell emphasized the need for financial institutions to understand the operational changes required for instant payments. From staffing needs to regulatory implications, financial institutions must adapt to the 24/7 year-round nature of instant payments.

“It shouldn’t really matter to you as a consumer or a merchant where that payment is processed as long as you can be confident that it’s being processed the most efficient, fast and cheap way possible for you,” Agrell said. “If you’re a financial institution, the first thing that you need to think about is what does this mean for me.”

That’s because, on the other hand, non-bank entities may have the opportunity to directly connect to payment rails, potentially disrupting traditional financial service providers. The shift in business models raises questions about revenue models, customer satisfaction and competitive advantages.

“You can flip those questions around and see how they help [both financial institutions and FinTechs],” Agrell said. “There’s so much to gain, and it is where the industry is heading.”