By Dean Nolan
SRM
The adoption of instant payments remains in its early stages, with just 7 percent of U.S. financial institutions currently participating. Many financial institutions are taking a wait-and-see approach, delaying the deployment of platforms such as the Federal Reserve's FedNow and The Clearing House's RTP Network. A recent survey by Dragonfly Financial Technologies found that just 24 percent of respondents are very likely to adopt FedNow this year.
Delaying the implementation of instant payments until 2025 might seem like a low-risk, cost-control initiative, but that decision could backfire on banks and credit unions. They must choose to embrace instant payments or run the risk of putting themselves at a severe competitive disadvantage.While a small percentage of financial institutions are plugged in, the RTP Network and FedNow cover over two-thirds of all U.S. checking accounts. A growing belief that the pace of instant transactions will accelerate in 2024 further makes the case that these platforms will quickly reshape the U.S. payments ecosystem (see tinyurl.com/yxbf82bn).
Demand for instant payments is growing, with industry experts predicting it will be among 2024's top trends. A Fed survey found that nearly 83 percent of businesses and three-fourths of consumers are already using faster payments, with most saying they plan to keep using the service in the future (see tinyurl.com/2p8y2m65).
These findings strongly indicate that instant payments for businesses and consumers are here to stay, creating a need for financial institutions to stay ahead of the curve when meeting consumer and business needs. Instant payment origination methods are not standardized, resulting in business customers limiting their dealings to one or two financial institutions. Establishing an instant payment-originating relationship with business customers places participating banks and credit unions in an advantageous position. Those that can facilitate instant payments will remain a step ahead.
Banks and credit unions that postpone a decision on instant payments risk losing business customers to participating competitors that can satisfy client needs. What's at stake? Late adopters could miss out on fee income opportunities and retained customer/member relationships.
The good news is that there's still time to act. You can make the business case for adding instant payments now, including revenue opportunities, the potential for operational efficiencies and customer/member acquisition and retention. Financial institutions can also make the case for using instant payments to improve their products and services. At a minimum, it would benefit banks and credit unions to proceed with a comprehensive cost-benefit analysis. This will better explain how instant payments adoption will improve speed and efficiency across your financial institution.
This assessment should determine if retail and commercial customers/members already use any instant payment platforms—or plan to do so. What types of use cases exist among those users? Are they at risk of jumping ship if you fail to add the service to your payments offerings? Answering these questions should help you determine when, not if, you plan to adopt instant payments.
Use cases and value propositions will drive the pace of instant payments disruption. The service enables around-the-clock access to consumers and businesses, allowing for payments to occur and be immediately confirmed wherever and whenever. Conducting regular assessments of customer activity is essential. Some use cases take less than 18 months to progress from the pilot stage to becoming a must-have service. Some current use cases include earned wage access, digital wallet unloads and government payments (see www.greensheet.com/emagazine.php?article_id=7425).
More and more value propositions are beginning to surface, making it clear that instant payments will be a fixture of the payments ecosystem. The bottom line is that financial institutions should fast-track implementation and include instant payments in their strategic planning for this year. 
Dean Nolan is the Managing Director of Commercial Payments at SRM, a trusted advisory firm serving financial institutions across North America and Europe. Dean is a seasoned expert specializing in building opportunities within the payments industry and has delivered billions in revenue growth and cost savings across a diverse range of organizations. To learn more about SRM, visit www.srmcorp.com.
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Prev Next
