In life, we only put up with inconveniences when a better alternative isn’t readily available. If we had inexpensive flying cars that could soar above traffic, we likely wouldn’t put up with traffic jams on the ground anymore.
The same goes for customers waiting for payouts, such as loan disbursements, earned wage advances, or remittances from loved ones. The average customer was, until recently, required to wait for hours to days for a payout, but that’s only because there was no better choice. Now there is, thanks to apps like Venmo and CashApp.
Payment rails that enable instant payouts, including Real-Time Payments (RTP) and a few others, are reshaping customer perceptions of transaction speed. Customers are losing patience with anything slower, and a quarter have already expressed frustration with sluggish transaction speeds.
Yet RTP is facing some challenges of its own. More than 75% of businesses expressed interest in adopting RTP back in 2020, but adoption is slower than one might expect, driven largely by concerns about fraud and chargeback liability.
There’s an opportunity to stand out from competitors by embracing RTP and other instant payment rails, but it requires a thoughtful approach. Here’s what you need to know when it comes to the future of instant payments — what payment rails matter most, what challenges impede implementation, and how to lay the groundwork for success.
Introducing Real-Time Payments
Before RTP, many institutions relied on wire and ACH transactions for payouts. The two complemented each other, to some degree. Wires are faster, with some arriving at the destination the same day. ACH is cheaper, but can take 1-3 business days to arrive due to a batch-based processing model.
RTP first arrived on the scene in 2017, operated by The Clearing House. As illustrated below, a sender relies on a third-party service provider like TabaPay to relay funds via the RTP network to a recipient bank, which then provides the funds to the customer.
(While RTP is inherently a “push” transaction — moving money from an institution to a user — the flow can be reversed with RfPs, or Request for Payments, which initiate an RTP transaction on the recipient’s end. RfPs and other repayment methods will be the focus of a future article.)
While RTP adoption is still an ongoing process, the payment rail has already achieved some major milestones. The Clearing House recently celebrated one billion transactions sent through the RTP network. And though it took more than five years to reach 500 million transactions, the next 500 million only took 18 months.
RTP does not exist in a vacuum, and it is only one of several rails now available to facilitate instant payments. Let’s take a look at how payments are changing to favor instant money movement, and how you can adjust your strategy accordingly.
RTP Lives Alongside Push-to-Card and FedNow Payment Rails
RTP is a major step up because of its convenience — but if some people can’t benefit from it, then it’s not convenient for them. Only about 70% of demand direct deposit accounts in the US support RTP right now. And even customers with supported accounts may simply not remember, or want to disclose, their account information.
This is where push-to-card, another rising star of the payment world, comes in handy. As exemplified by Visa Direct and Mastercard Send (and illustrated below), push-to-card works by sending payments through card networks “in reverse” — from a merchant to a bank, the opposite of a normal card payment — allowing anyone with a debit card to receive payouts in 30 minutes or less. While these services don’t support every debit card, you can achieve near-universal coverage by combining push-to-card and RTP.
Another companion to RTP is FedNow from the Federal Reserve. It works similarly to RTP, but since it is operated by the government rather than The Clearing House, it operates independently of RTP. By implementing FedNow alongside RTP, you gain redundancy in instant money movement.
RTP, FedNow, and Push-to-Card Demand a New Focus on Security
If 96% of providers that introduced instant payments have reported improved customer satisfaction, what’s holding companies back?
The biggest challenge is the inability to “undo” instant transactions. With older, non-instant rails like ACH, money is in transit for some time, and senders can revoke the cash delivery for some time if needed. On the other hand, since instant payment rails are (unsurprisingly) instant, the recipient immediately gets access to the money, and there’s no way to undo the delivery. The sender can ask the recipient to return the payment, or contact law enforcement, but recovery is far from guaranteed.
While these liabilities may push companies to delay implementing instant payments, customer demand will eventually force adoption to remain competitive. As a result, it’s preferable to proactively consider a range of security measures that can drive down fraud related to instant payments.
Performing due diligence on recipients requires several security checks before and during a payout, including:
- And many more.
Finding a platform that can perform all of these functions, like TabaPay Shield, can be extraordinarily helpful in this regard. You gain a command center to ensure security, and a streamlined way to continually monitor payment health.
Instant Payments Force Renewed Focus on Cost Optimization
Delivering faster payments can come at a cost. RTP, push-to-card, and FedNow are slightly more expensive than the equivalent ACH transaction. Yet the benefits are so great that these faster payment rails are quickly becoming a competitive necessity. For many companies, the question is less “should we stop depending entirely on ACH?” and more “how do introduce instant payment rails while keeping costs under control?”
The key to managing costs is supporting multiple payment rails — including RTP, FedNow, push-to-card, and ACH — so you can choose the least expensive one that works for a given use case. And for use cases where push-to-card is a good fit, providers like TabaPay offer automated least-cost routing across card networks to reduce expenses. Providers that offer bank redundancy with multiple partner banks can also promote resilience and minimize downtime.
It’s worth highlighting pricing for push-to-card, specifically, because the pricing model you choose can make a substantial difference. Two common types of push-to-card pricing include:
- Flat rate, which levies a flat fee and a percentage of the transaction amount.
- “Cost plus,” which levies an amount based on interchange fees, network fees, and processing fees.
Although possibly counterintuitive, “cost plus” is typically preferable to flat rate. Since flat rate takes a percentage of the actual transaction, the overall fee quickly eclipses the “cost plus” alternative. TabaPay leverages a “cost plus” model, taking advantage of its strong relationship with card networks to drive down interchange and network fees.
The Future is Instant
Instant payments are more than just a set of important payment rails. They’re reshaping everything from consumer expectations and cost optimization practices to security needs and the investments that are most important for fintech firms to make. There’s still time to gain a competitive advantage from introducing real-time payments; delays will likely put you at the back of the pack.
TabaPay provides the tools needed for reliable and resilient real-time disbursements to customers. We cut out the middleman and communicate directly with The Clearing House, ensuring resilience and cost optimization with a robust network of sponsor banks and payment networks. And our leaders bring decades of experience shaping and improving the payments industry, so they can provide expert insight to optimize your strategy.
To explore how your organization can adopt or improve instant payment infrastructure, reach out to us. We’d be happy to share insights and tailor a strategy to your use case. You’ll be ready to leverage RTP, push-to-card, and FedNow with confidence.
