Faster Payments Become Catalyst for New B2B Business Models

Can instant payments transform transactions from waiting games to a real-time revolution?

“There’s a certain expectation that instant payments means instant gratification,” Shaunt Sarkissian, founder and CEO at AI-ID, tells PYMNTS for our series: “What’s Next in Payments – Instant Payments: What will Turbocharge Instant Payments Growth in 2024?”

Still, instant payments have been a long time coming — especially in the United States, where the adoption has been relatively slower compared to Europe.

And while the real-time money movement innovation is potentially poised to become a pivotal force in the financial realm, instant payments will need to tap into strategies that can drive widespread adoption across both consumers and businesses.

Sarkissian said the rise of peer-to-peer payment systems and platforms like Zelle has created an expectation for instantaneous transactions, setting the stage for broader adoption.

One key strategy to encourage widespread adoption is the push toward “pay by bank,” he said.

Major players like J.P. Morgan are investing heavily in this method, aiming to position it as a viable alternative for consumer retail transactions. The challenge, according to Sarkissian, lies in convincing consumers to move away from traditional credit card-based transactions, which offer perks such as loyalty points and fraud protection.

“Particularly here in the U.S., at the end of the day, we’ve become very accustomed to our points, to our loyalty benefits and other rewards offered in a credit card,” he said.

Can Instant Payments Become an Integral Part of the Financial Ecosystem?

Beyond the importance of aligning instant payments with the evolving expectations of consumers and businesses, real-time money transfers also come with their own security concerns that need to be addressed.

Sarkissian points to a dual approach involving technology and robust business processes. Two-factor authentication and advanced validation methods can enhance the technological security measures, he said. Additionally, setting clear business rules and customer expectations regarding the immediacy of payments is essential.

“This is a different world, a different era,” Sarkissian said.

Education also plays a pivotal role in making consumers aware of the differences in real-time payments and the need for careful consideration before authorizing transactions.

As instant payments gain momentum, they will need to interface with existing systems and platforms — meaning interoperability becomes a key concern.

Sarkissian noted traditional card networks such as Visa and Mastercard already have systems in place, like Visa Direct and Mastercard Send, to facilitate instant money transfers.

He envisions a significant role for instant payments in the business-to-business (B2B) realm, where the lower velocity of transactions can lead to positive economic outcomes for both parties.

“The real-time payments opportunity is most prevalent in business and B2B transactions. If I get that money right away, I can start earning interest on it … immediacy has an impact for businesses and allows faster, even different, business models,” Sarkissian said.

Moreover, the potential for international B2B transactions becomes intriguing.

Connecting real-time payment networks across different countries can create a seamless and efficient global payment ecosystem. For instance, Sarkissian said, integrating the U.S. FedNow® Service with Mexico’s SPEI network could enable real-time international transactions, presenting interoperability opportunities.

The Impact on Traditional Financial Institutions and FinTech Players

Looking ahead to 2024, Sarkissian predicts a significant growth in the adoption of instant payments — with businesses taking the lead — which will likely drive a shift in consumer behavior, making instant payments a mainstream choice.

Still, as instant payments become a pivotal force in the financial realm, they will likely impact the business models and operational realities of existing financial institutions and other adjacent financial services players.

Instant payments offer financial institutions a revenue opportunity, Sarkissian said, noting that the key is to find the right balance between cost and value.

Banks can monetize the speed and immediacy of instant payments, providing an attractive proposition for businesses. However, Sarkissian advises caution, urging banks not to make the mistake of offering these services for free, as it becomes challenging to charge for them later.

FinTech players with a business model centered around aggregating and expediting slower payments may face challenges, he noted, while others can leverage instant payments to enhance their offerings. FinTechs have the opportunity to partner with banks that provide real-time payment services, ensuring they align their value proposition with the evolving landscape.

Still, one of the more notable aspects of instant payments that Sarkissian highlights is their potential to enhance financial inclusion. The speed of transactions can positively impact underserved populations, offering faster access to funds and reducing reliance on predatory financial services.

His predictions for the coming year signal a transformative period where instant payments become an integral part of the financial ecosystem, shaping the way we transact and interact with money in the digital age.