Instant Payments for Small Businesses: Low Hanging Fruit

If you have not read ICBA Bancard CEO Tina Giorgio’s recent blog on instant payments for small businesses, it is definitely worth reading. In the blog, Tina includes some key stats that effectively capture the expectations and demands of small businesses when it comes to instant payments:

  • Nine in 10 businesses expect to be able to send and receive instant payments by 2023, according to the Federal Reserve.

  • Two-thirds of small businesses said access to faster payments will factor into any decision to switch banks in the future, according to another Fed survey, and

  • Fifty-four percent of small to mid-sized businesses (SMBs) would be willing to pay a fee to receive instant payments, finds a PYMNTS.COM/Ingo Money study.

When you consider these factors, it’s apparent that small businesses expect access to instant payments; are willing to pay for the privilege; and may decide where to bank accordingly. This should serve as a ‘call to action’ for community banks relative to instant payments.

There are an endless number of documented instant payments use cases, but let’s take a minute to dive deeper into one that may help you energize the faster payments conversation with a segment of your business customers and deliver immediate value.

Instant transfers from merchant accounts to bank accounts

The following instant payments use case, described in practical terms, is driving volume and adoption over The Clearing House’s (TCH) RTP network:

Joe Smith has a food truck that he operates on the weekends, and he uses Square at the point-of-sale. After racking up sales on Saturday, Joe logs into his online merchant account from his mobile phone and initiates an instant payment transfer from his Square merchant account to his community bank account. Joe then has immediate access to these transferred funds, and uses the cash on hand to go buy more product at the grocery store to support Sunday’s anticipated sales activity.

The above use case is easy to talk about and market for small business customers, and only requires your bank to be set up as ‘receive-only’ on the RTP network—a natural first step for many banks on their instant payments journey. Additionally, this use case has become even more valuable as consumers and businesses feel the pinch of inflation and seek increased liquidity, particularly during off hours and weekends.

There are several other use cases that small business customers will ultimately find valuable. The Federal Reserve highlights some of these in their FedNow Use Case Series. These include Consumer-to-Business (C2B) Bill Pay, which allows customers to pay bills and know they are received immediately and prevent late fees, or Business-to-Consumer (B2C) Immediate Payroll, where expedited payments can be initiated immediately instead of scheduling in advance. The Clearing House’s RTP® network also now has a Document Exchange Service, which enables businesses to include an actual invoice in a request-for-payment. Additional use cases for consideration can be viewed here on the TCH web site.

Amidst the plethora of use cases out there, hopefully we’ve provided a few ‘low hanging fruit’ options for consideration. For a deeper dive on next steps for supporting your instant payments implementation, read: , The What, Why, and How of Instant Payments. Good luck on your instant payments journey and know that ICBA Bancard is here to help!

Nick Denning is senior vice president of payments industry relations at ICBA Bancard and can be reached at [email protected].