When it comes to making a payment, a payment is a payment is a payment, right? Yes, in the sense that a consumer or business intends to pay for goods or services. And while they have many payment methods to use, how might they choose one payment means over another?
Perhaps one consideration is whether they want to fund the purchase out of current income or with borrowed funds. Some other reasons may include ease of use, familiarity, convenience and cost. Or they may prefer to use a payment method that is safe and secure or universally accepted. However, in today’s ever-changing (and rapidly) payments ecosystem, consumers and businesses may also make their decision based on how quickly the payment needs to be in the payee’s account – fast, faster or instantly.
But what payment options are considered fast? Faster? Instant? Cash would be considered fast when compared to bartering as are checks, debit cards and next-day ACH. However, Same Day ACH and wire transfers fall into the faster category. And that leaves RTP® and FedNowSM,which are instant payments. While fast payment options are good and still serve a purpose, faster and instant payments are where it’s at these days. So, let’s further define them!
With faster payments, a payee’s deposit account is credited or debited a few hours after a payment order has been initiated. Same Day ACH allows credit and debit payments to be originated, processed and settled all on the same day. Same Day ACH payments are accumulated throughout the day and then offset against each other, with only the net differential transferred between financial institutions (known as deferred net settlement). A wire transfer is also a faster payment; however, individual transactions settle as they are processed (known as real-time gross settlement). Both Same Day ACH and wires may only be processed during certain hours Monday through Friday, excluding federal holidays. This is one key feature that keeps them from being instant payments.
With instant payments, clearing and settlement occur in real-time for each individual credit transaction, and funds can be sent and received around the clock, any day of the year. The transfer of funds between the payer and payee's accounts at financial institutions occurs within seconds and funds are final and irrevocable. RTP, which was implemented in November 2017, and FedNow, which goes live July 2023, are examples of instant payments.
So, the payment options whether fast, faster or instant are there for consumers and businesses alike, but how does a financial institution know which one(s) to offer?
It’s important to know which payment methods your clients are currently using to tailor payment services to their preferences. It’s safe to say there has never been as wide a diversity in account holders as there is today, whether consumers or business owners – seniors, baby boomers, Gen X, Gen Y (millennials) and Gen Z (centennials). Analyzing statistical information for legacy payment methods can help to determine their fast and faster payment preferences. Determining which instant payment options to offer may prove to be more difficult, considering consumer use of a payment instrument is based on merchant acceptance, and merchant willingness to accept a payment instrument depends on how many consumers have adopted it. It’s like trying to solve the mystery of which came first, the chicken or the egg! While we may never know the answer to that long-debated question, we do know the interest and demand for instant payments is rising!
Whether you’re already on the instant payment path or just starting your journey, the time to prepare is now. Increase account holder attraction and retention by developing instant payment solutions that take advantage of RTP and FedNow and gain a competitive edge. You can also gain a competitive edge with our new Faster Payments Professional Certificate program in partnership with Nacha, The Faster Payments Council and the Payments Associations! Watch for information, coming soon.
Republished with permission from EPCOR