Very Real and Very Here: The Proliferating Use Cases for Instant Payments

Instant payments have been a global phenomenon, but the momentum for real-time payments is building in the U.S. There is a growing expectation among both businesses and consumers that when they send funds, the recipient should be able to access them instantly.

In a recent PaymentsJournal podcast, Justin Jackson, SVP, Head of Enterprise Payments, Fiserv, and Robert Clayton, Vice President of Product Management, as well as Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed the increasing number of use cases for instant payments and the progress that has made toward adoption.

Instant Use Cases

One of the early use cases for instant payments has been in the gig economy, predominantly in the rideshare market. Drivers are constantly refueling, performing maintenance, and buying food and beverages. To keep them out on the road, it would be a great boon for rideshare drivers to refresh their funds throughout the day, any day of the week, through a real-time payments connection.

“There are similar needs in the marketplace space,” Clayton said. “There is a demand for real-time, around-the-clock payments so marketplace sellers can manage their inventory. Marketplaces traditionally have set payment boundaries around sellers, where they must wait a prescribed amount of time or reach a sales threshold before they can request a payout. Real-time payments have tremendous benefits for those sellers.”

The insurance industry is also seeing traction. Often, clients lose their car or house and it could be a massive competitive differentiator for an insurance company if they are able to settle a client’s claim in real-time during an urgent situation.

Instant payments could serve government agencies in a similar capacity. The Southeastern U.S. was recently hit by hurricanes that did significant damage, which created the urgency needed for many to receive disaster funds.

“Federal and state agencies are extremely focused on getting aid to the people who survived these events,” Clayton said. “They need to make those funds available as quickly as possible, but it can’t be location based. Even if the government could deliver checks same-day to disaster victims, many have evacuated or their homes have sustained extensive damage. The ability to pay a person digitally in real-time, wherever they might be, could be an incredibly important force for government agencies.”

Shifting the Conversation

Although the amount of use cases for instant payments has increased, some of the financial institutions that were early adopters of RTP or FedNow aren’t using the rails to their fullest potential. Many of these organizations can only receive instant payments; they don’t have the functionality to send.

“Either they didn’t see the use case or the applicability, or those institutions are concerned about the risks,” Jackson said. “However, that mindset has shifted to where it’s not receive-only, it’s receive-first. They may not be ready to send instant payments now, but they want that capability in the coming months or years. They know they will have customers that want to make instant transfers or pay bills in real-time.”

The risks of sending instant payments, and the potential for fraud, has daunted some U.S. financial institutions because real-time payments are guaranteed credit transactions that are instantly available on the recipient’s end.

“It is a significant hurdle to clear to unwind an instant payment transaction if necessary,” Jackson said. “There is a need to have strong risk and fraud controls, many of which are already in place, but some institutions are still reticent on instant payments because they are not sure how they will handle fraud.”

Instant payment volumes will also hit an inflection point where exponential growth occurs overnight. In that scenario, many organizations are concerned they won’t have the infrastructure to support it.

There are additional concerns in corporations or government entities that are still reliant on paper checks. Many of those organizations have built their financial operations to account for the float between the time a check is issued and the time it is processed. A switch to instant payments would mean those organizations would have to drastically adjust their model.

Though it might cause short-term issues, there are benefits to moving from paper checks to a real-time payments model. Chief among those benefits is an increase in customer or constituent satisfaction if they receive their funds instantly.

“In the case of a natural disaster, if a government agency is able to send funds immediately, it shifts the conversation,” Clay...