By: Lou Grilli, Senior Innovation Strategist
Consumers now more frequently expect payments to be instant – even when they are not. Tapping a card at the grocery store and walking out with a full cart leads many to assume that their payment was instant. Even popular peer-to-peer (P2P) payment platforms like Venmo, Zelle, Apple and others give the perception that transfers are instant when, in reality, the settlement of the funds – moving money from the sender’s financial institution or fintech to that of the recipient – usually uses ACH and can take up to three days to complete. Consumers seem satisfied with the perception of instant payments, but with settlements lagging by a day or two, is it fast enough for an always-on world?
What do Your Customers Expect Today?
The world has changed since the pandemic, and expectations about money movement have changed along with it. When consumers stopped traveling and dining out, many service workers were out of work or living paycheck-to-paycheck. And when they did get a job, getting paid bi-weekly wasn’t enough. Uber Eats and Doordash became critical services, and drivers needed access to their earnings immediately to pay for essentials like gas. For many, getting paid at the end of each shift was critical to surviving – the mere perception that the payment was instant wasn’t enough. This gave rise to Instant Pay, allowing drivers to cash out up to five times a day. Having the funds available in a worker’s account through on-demand payroll was crucial.
Getting money faster is not the only benefit of instant payments. It may sound counterintuitive, but being able to make payments instantly also helps people living paycheck-to-paycheck. Timing the payment of a bill with the end of a shift may mean not having the power cut off. Holding on to your money until the day the rent is due may mean one more bag of groceries. Instant payments is not just about moving money faster but also about timing, control and confirmation. A real-time payment can be initiated any time – day or night, weekends, bank holidays – with the sender getting confirmation that the money is in the receiver’s account, irrevocably. The recipient, in turn, can have faith that the money will not be retracted, the check will not “bounce.” This is what customers expect – the ability to control their money and be sure it’s getting to where they want when they want it to get there.
The Road to Real-Time Payments Systems
The Clearing House (TCH), owned by several of the largest banks in the U.S., has been an integral part of the core payments infrastructure working to change payments processing to a real-time proposition. TCH’s real-time payments (RTP) service has been operational since November 2017, processing well over 50 million real-time payments each quarter. A second instant payment service, FedNowSM, from the Federal Reserve Banks, is set to go live in July 2023. The Fed is targeting “financial institutions of every size, and in every community across the U.S.” to enable their customers, both businesses and individuals, to conveniently send and receive instant payments and enable recipients to have full access to funds immediately, giving them greater flexibility to manage their money and make time-sensitive payments.
The payments industry is ripe for change. We will succeed by understanding customer pain points, designing new product solutions and looking to a future where real-time payments often meet unidentified needs. The needs of business and commercial customers are also changing, and we will see more adaptation to fulfill or compete to meet their needs. Product solutions riding the real-time payment rails serve the gig economy through real-time deposits or payroll to their accounts. The expectation is that payroll deposits can serve a broad population, including the underbanked who require more immediate funds. We will see expanded product-solution sets emerge with these new payment rails. We are only at the beginning of the phenomenal payments shift that aligns with the real-time expectations of emerging generations. The roll-out, adoption and usage of real-time payments will by no means be the end of services that only provide the perception of instant; these services will still have their place. However, they may not be fast enough for the real-time world. The movement toward real-time payments is the future, but it is also now.
Additional Content from Primax
The Insights section of the Primax website contains additional resources for your community bank’s staff. “Faster Payments Doesn’t Mean Real-Time Payments” contains relevant definitions to help distinguish between the terms faster payments and real-time payments. The blog post “Is the Shift Toward Real-Time Payments Inevitable?” discusses the growing need for financial institutions of all sizes to implement faster payments to meet customers’ expectations. And an article authored by one of Primax’s thought leaders describes how “Faster Payments Benefit More Than Just Big Banks.”
Lou Grilli is a Senior Innovation Strategist tasked with building and shaping a superior payment and banking experience capability. Lou is currently focused on real-time payments and cryptocurrency. He participates on the U.S. Faster Payments Council and is named on a patent for the use of blockchain for loyalty programs. Lou holds an MBA from Duke and a master’s degree in Computer Engineering from the University of South Florida.
