How can US banks win at instant payments?

The US is said to lag in the race to instant payments. But that’s untrue. There is no single race in the US, banks are actually playing track and field.  Here’s how a focus on specific markets, regions, and instant access to wages can help US banks win at instant payments. 

What makes the U.S. instant payments landscape unique?

The complexity of the U.S. financial market is unmatched. With thousands of banks and a system where both state and federal regulations apply, implementing nationwide changes like instant payments is not easy. This stands in stark contrast to markets with a centralized banking system, like India, the UK, and the EU, where a single mandate can drive innovation. 

Despite being a pioneer in payment technologies as far back as the 1970s, the U.S. now faces the challenge of modernizing their legacy systems. The early investments in the Automated Clearing House, check clearing, and card processing were leading edge in their day, but updating these infrastructures is now a barrier to meeting the changing needs of businesses and consumers. 

Plus, providers like Venmo, Cash App, and Zelle serve the person-to-person instant payments market well, satisfying most consumers’ needs. This reduces the pressure on banks to innovate in a broader, widespread account-to-account payment space.

So, how do RTP and FedNow affect market dynamics?

The US is playing a different game to India with UPI, PIX in Brazil and the EU with SEPA Instant. 

Banks are not in a single race to instant payments but multiple races or events with multiple competitors. It looks more like track and field, where each event requires unique skills and strengths from the athlete. 

As a bank, you should avoid entering the crowded peer-to-peer market. Consumers are already serviced with ‘good enough’ offerings. It’s like the 100-meter dash, attracting the most attention from the market and the strongest competitors. It’s a race you’re unlikely to win.

Instead of investing time and energy here, focus on events where you have unique expertise. There are market segments with untapped potential for instant payments. Go deep in an industry or a region. Find the areas that can benefit from business-to-consumer or business-to-business instant payments, like medical billing and real estate. 

Instant payments are good for workers, good for corporates, and good for the economy. They can help accelerate hiring, delivery, and growth. They allow invoices and salaries to be paid on the day they are due, rather than days in advance.

For gig workers and those on lower incomes, daily pay via an earned wage access scheme can help them pay rent if it’s due before their paycheck. For corporates, improved cash flow management can unlock millions in extra liquidity.

It’s not just about fairness, convenience, or keeping the lights on; it’s about corporate value. Businesses can recruit and retain their staff, gaining a competitive advantage, while the faster movement of money supports economic growth across the economy.

As branches close, banks consolidate, technology becomes more API-driven, and all types of customers become more mobile, you must signpost tomorrow’s services before your clients know they want them. Because once they do, they will want them ‘now.’

So, to win at instant payments, identify the needs of under-served markets, find your niche, and focus on the areas you can add value.

The only thing left to do is get your jacket off and get your track shoes on. 

New US instant payments research: Time to leave legacy behind?

We surveyed 300 senior payment professionals at US banks to find out how they’re preparing for instant payments. Download the report to discover what’s holding them back. 

Download the report to discover what’s holding them back.