By Tim Munto, SVP ACH & Online BankingThe Federal Reserve’s new system for instant payments went live on July 20th 2023. Banks and credit unions across the US can now sign up to the network and leverage this tool to facilitate money movement for their individual and business customers at any time of the day, and any day of the year.35 banks and credit unions as well as the U.S. Department of the Treasury’s Bureau of the Fiscal Service are early adopters of the interbank payment system. Yet the Federal Reserve is committed to working with the remaining 9,000 banks and credit unions across the country to support the widespread availability of this service for their customers over time.FedNow increases competition within the US payments landscape by offering an alternative to The Clearing House’s (TCH) real-time payments network (RTP) launched in 2017. While financial institutions have been somewhat slow on the uptake of RTP in the last five years, we’re seeing signs that this is starting to change. Many believe that The Federal Reserve’s FedNow will allow banks to provide instant payments at a farther reach and scale with all the security and liquidity management that comes with the Federal Reserve - further democratizing the landscape and levelling the playing field for financial institutions of all sizes across the US.While the launch of FedNow itself isn’t revolutionary for the industry, it does point to the importance and growth in popularity of real-time payments. At Nuvei, we are leaders in processing real time payments for businesses in the US, so let’s look at how this payment method has evolved and what the future might hold.
Starting with the numbers
The market size value for real-time payments across the world in 2023 is $23.2 billion, and it is predicted that adoption will continue to grow at a compound annual growth rate of 35.5% from 2023 to 2030.In the US alone, real time payments growth has been steady and significant. The RTP instant payments network surpassed the $500 million payment milestone on July 22. Transactions on the RTP network in Q2 2023 totaled 58 million worth $29 billion, up from 41 million transactions worth $18 billion in Q2 2022.These numbers are unsurprising considering we live in a world where the demand for instant gratification, speed and frictionless digital experiences dominates; and this extends to how we pay. One needs to simply look at the popularity of peer-to-peer payment services like Zelle – 3+ million Americans send account to account and Zelle payments each month and both settle over the RTP network. The expectation when paying businesses for goods and services should be no different but the numbers tell a slightly different story.In a recent study we conducted in partnership with PYMNTS we found that an overwhelming majority of American consumers still use credit and debit cards to pay for goods and services online. The top reason for choosing credit card at the checkout is closely linked to the ability of earning points or rewards – 69% of consumers we surveyed chose credit card for this reason.Real-time payment popularity is clearly on the up but hasn’t quite reached its full potential…yet. But evidence suggests that consumers would consider adopting an alternative payment method at checkout if appropriately incentivized. Our data finds that 26% of consumers are at least somewhat interested in using their debit account directly to pay for online purchases if they can earn rewards.For 10% of these consumers, the ability to earn rewards is the most important reason to make the switch. Moreover, 57% of consumers who used such an alternative in the past would be very or extremely likely to use it again when making retail purchases if offered rewards, as would 25% of consumers who have never used it.
The benefits of real-time payments
The benefits of real time payments are various and widespread, for financial institutions, businesses, and consumers alike.Let’s start with the obvious one: speed. If recent periods of turmoil have taught us anything, it’s that fast payments have life altering potential. This was especially true during the Pandemic where brick-and-mortar banks were closed, and people relied on cards and mobile wallets to receive aid. Not to mention governments and communities providing aid to displaced populations in the wake of natural disasters.Immediate payments with instantaneous clearing and settlement help to reduce the amount of money locked in processing, improving cash and liquidity management for businesses and giving consumers a much clearer picture of their finances.Real time payments are also transmitted with more data, formatted to a messaging standard. This enables innovative businesses to automatically reconcile payments, improving efficiency and ultimately reducing failed payments. And when failed payments cost merchants as much as $118.5 billion in fees, labor and lost business in 2020, this benefit becomes hard to ignore.To summarize, within each of the below use cases, there is great potential for disruption for real time payments:
Where to next?
As we’ve seen time and time again, consumers are habitual when it comes to their payment choices. It takes time, and often fierce macro-economic pressures, for new payment innovation to achieve ubiquity. While we’re by no means suggesting that another Pandemic or financial crisis is required for real-time payments to achieve widespread popularity, we do believe it is only a matter of time until it does.Over the last five years, Nuvei has been a contributing member to the 500 million instant payments processed in the US. We’re excited about the launch of FedNow and are thrilled to be part of their journey.We expect there to be sustained growth in instant payments as both FedNow and TCH RTP networks mature in the US and the steady growth for real-time payments continues at a global scale. For more information on instant payments and how they can transform your business please get in touch with our experts.
.svg)
