Consumers and businesses are increasingly using payment platforms that allow them to pay or transfer money faster than ever before, with U.S. faster payments transactions topping $900 billion in 2020.
As demand continues to grow, here are four important considerations for community banks exploring instant payments.
- What’s trending around the world. Instant payments, along with other types of faster payments, are quickly growing in popularity around the world and gaining momentum in the United States. According to FIS, 56 countries now have real-time payments, compared to just 14 countries six years ago. This rapid increase is due in part to ongoing innovation in use cases for which faster and instant payment systems are well suited. The Federal Reserve offers highlights of faster payment trends in India, China, Europe, the U.K. and more.
- How faster/instant payments work. When it comes to instant payments, the end-user process may seem simple: User No. 1 sends a payment and, moments later, user No. 2 is notified that they’ve just received the payment. That’s simple enough, but the behind-the-scenes process can vary and feature different risks and benefits. The Fed offers this hypothetical example to help users understand the anatomy of the faster payments process, including initiation, authorization, transmission, and receipt.
- The differences between fast, faster, and instant payments. Many people use the terms “fast,” “faster,” “real-time,” and “instant” payments interchangeably. And to consumers, faster and instant payment systems may seem similar. But things aren’t as similar behind the scenes. Faster payment systems can differ in several ways, including how clearing and settlement occur between financial institutions. These differences may affect how banks design the services they offer.
- Fraud and instant payments. There’s a lot to love about instant payments, but as with any type of payment, the potential for fraud does exist. In general, the actions financial institutions, consumers, and businesses take to minimize fraud with other payment types apply to instant payments. However, due to their speed and irrevocability, instant payments require some unique considerations. Banks thinking about instant payments adoption should consider a holistic approach to fraud prevention, particularly in cases in which existing fraud solutions and processes may be based on batch processing or manual intervention.
Continuing the instant payments journey
When it comes to deciding which payments platform will be best suited for a particular financial institution and its customers, there’s no single answer. Understanding the different models can help community banks assess the various faster and instant payment platforms available in the market and how to start preparing for them.
More information on instant payments is available from ICBA’s “Next Steps on Your Instant Payments Journey Webinar Series” and on FedNow.org.