Why Instant Payments Should Be on Your Digital Transformation Road Map

By Connie Theien

Oct. 25, 2022

Businesses and consumers today want everything at the click of a button, including the ability to send and receive payments. Even if you aren’t hearing the words “faster payments” or “instant payments” directly from your customers, trends and research show the demand is there – and rising. Recent Federal Reserve surveys reveal growing interest in faster payments:

  • Nearly nine in 10 businesses expect to be ready to send and receive faster payments within three years.

  • Faster/instant payment use cases of greatest interest to businesses include payroll, recurring bill payments, internal transfers, and regular or routine payments.

  • About 70 percent of consumers say having access to enhanced faster payment capabilities from their financial institution(s) is an important satisfaction driver.

Instant vs. Faster Payments: What’s the Difference?

The term “instant payments” is often used interchangeably with “faster payments,” but instant payments are different. For example, same-day ACH payments, where a payee’s deposit account is credited a few hours after a payment is initiated, are typically considered faster payments.

With instant payments, clearing and settlement occur in real time for each individual transaction, reducing interbank credit risk that can happen when settlement is delayed. Additionally, funds can be sent and received around the clock, any day of the year; the transfer of funds between the payer and payee's accounts at financial institutions occurs within seconds and funds are final and irrevocable, providing payment certainty and transparency.

Benefits of instant payments

The immediate, around-the-clock nature of instant payments can bring many benefits to all parties involved. Banks that offer instant payment services can remain competitive, create new products, and meet the needs of customers.

Instant payments can help businesses better manage cash flow, improve efficiency of corporate payments, and streamline reconciliation processes. For individuals, instant payments offer the ability to send and receive money with confidence and reduce the risk of overdraft and late fees.

Instant payment use cases

There are many possibilities for how community banks can develop new offerings to enable individuals and businesses to use instant payments. Below are a few examples.

  • Account to account (me to me) – Allows customers to immediately transfer funds between accounts at different financial institutions. Businesses can consolidate funds into a single account for payroll or other purposes and individuals can reload prepaid cards, fund mobile wallets, and more.

  • Bill pay – Enables customers to instantly send and receive bill payments that include remittance details. Businesses and individuals can pay bills such as loans, utilities, and services.

  • Person to person – Provides customers with the ability to transfer funds to friends and family in seconds or pay for on-demand services such as babysitting.

The Federal Reserve’s FedNow Service

To help U.S. financial institutions of all sizes meet the increasing demand for instant payments, the Federal Reserve is launching the FedNow Service by mid-2023. This instant payments platform will enable financial institutions to work internally or with service providers to develop new instant payment solutions, increase customer satisfaction, and gain a competitive edge.

Take the next steps and learn more

Instant payments can be an important part of your organization’s digital transformation road map, but it will take preparation. The time to prepare is now and the FedNow Service has many resources to help including instant payments 101 information, the FedNow Service Readiness Guide and the FedNow Service Provider Showcase. Visit FedNowExplorer.org for more information.