April 27, 2022
According to the Federal Reserve, nine in 10 businesses (or 29.25 million) expect to be able to send and receive instant payments by 2023.
Fortunately, in many cases, community-based financial institutions have begun the process to meet these needs: A recent study conducted by Cornerstone Advisors, found that 31% of the community-banks surveyed plan to implement real-time payments in 2022—a 120% increase over the number of banks that have already rolled out real time payments.
For the quarter of community banks (26%) that do not know when they will implement instant payments, now is the time to start planning. This is particularly important considering roughly two-thirds of small businesses report that access to faster payments will factor into any decision to switch banks in the future, according to the Fed.
Real-time payments have been rising steadily in importance for small businesses over the past few years; however, this intensified focus has been fueled by the pandemic and small business experiences since March 2020.
More than ever before, cash flow is king with small businesses. In fact, almost 75% of micro businesses and 60% of larger businesses cite it as a top concern. And when you consider the findings of a November 2021 PYMNTS.com/Ingo Money study, which found that nearly a third of ad hoc receivables were paid late and 60% of those were over a month behind—having instantaneous, irrevocable payments becomes even more attractive.
The study also found that 54% of small-to-medium businesses would be willing to pay a fee to receive instant payments. This is further substantiated by a March 2022 Mercator Advisory Group report noting, “while consumers are not always convinced that they need to pay for real-time payments, billers are, and they are willing to pay for a transaction that can instantly reconcile and provide them with irrevocable funds.”
Experts agree bill payment will be an early driver of instant payments volume. Federal Reserve research revealed that 45% of businesses see recurring or ad-hoc bill pay as a chief use case. In addition, Mercator Advisory Group predicts continued growth in instant bill payments, due in part to a rise in transactions on networks like Zelle, where consumers are using the service to pay microentrepreneurs like landscapers, beauticians, and nannies. Other attractive use cases include business-to-business (B2B) supplier payments and just-in-time payments; payroll and expedited payroll; and account-to-account (A2A) transfers and cash concentration.
With National Small Business Month as a backdrop in May, community banks have a natural opening to survey their small business customers and find out more about their instant payments’ interests. This feedback will help your bank determine how to align its forthcoming instant payments roll-out with the unique needs of your small business customers.
Beyond that, now is the time to get your team up-to-speed on all things instant payments. To help raise knowledge of today’s faster payments landscape, ICBA and ICBA Bancard have developed the “Next Steps on Your Instant Payments Journey Webinar Series.”
Taking the time to thoroughly understand offerings now will be key as you move into implementation. In the words of Mercator Advisory Group’s Sarah Grotta, “For participants in the financial services market, preparing for real-time and faster payments is a matter of when, not if.”