US banks are failing to meet the demand for instant payments

• 63% of corporates demand instant payments, yet less than a third of banks are capable of meeting demand
• Nearly all (98%) US banks say instant payment appetite is affected by wallet services.
• 34% of US banks are concerned about updating legacy systems to handle instant payments.

London, 7 May, 2024: New research from RedCompass Labs, a world leader in payments modernization, has revealed that US banks are failing to meet demand for instant payments.

The report, “Time to leave legacy behind? Instant payments in the US”, surveyed 300 senior payment professionals in US banks to get a better picture of the demand for instant payments, the barriers to implementation, the challenges banks face, and other important payment trends.

The research has revealed nearly two-thirds (63%) of US corporate bankers experience significant or overwhelming demand for instant payments from their corporate customers. Yet, at best, less than a third of US banks are signed up to RTP and FedNow, which means less than a third can offer instant payments as a service.

Over half (53%) of all bankers said they feel either significant or overwhelming demand or adoption from both corporate and retail clients, while nearly all (99%) said they feel at least some level of demand or adoption from both sides.

The existence of Zelle, Venmo, Cash App, PayPal and other wallet services has dampened US Banks’ appetite for implementing instant payments, with half (50%) feeling a lot or significant impact. Nearly all (98%) experienced some form of impact. Given these apps have a huge market share and offer near-instant payments already, many banks see Zelle as a ‘good enough’ instant paymentssolution.

Legacy systems are a big barrier to adoption. More than a third (34%) of US banks are concerned about updating their core infrastructure to handle the increased volume and speed of transactions. Other challenges include 24/7 availability (34%), cannibalizing other revenue streams (32%), and choosing between RTP and FedNow (31%).

Other key findings include:

• Benefits of instant payments to corporates: The top three were payment certainty (53%), improved customer experience (48%) and working capital optimization (47%)
• The financial and operational incentive for switching to instant payments: Nearly all US banks surveyed (98%) plan on monetizing their real-time payments service and nearly nine in ten (87%) respondents plan on passing costs to their corporate clients.
• Interoperability is a priority: Nine in ten (89%) US banks are considering real-time payment interoperability across schemes, cross border and other real-time payment options such as pay-to-card, wallets and cards.
• Growing awareness of ISO 20022: 91% of US banks were aware of ISO 20022, up from 28% in 2017.

Tom Hewson, CEO at RedCompass Labs, comments: “The US is taking sizable steps forward in instant payments. Adoption is growing steadily but has been slow compared to the rest of the world. Legacy systems are ill-equipped for 24/7 availability, banks are conflicted with worries of lost card revenues and how they will manage, partner and compete with FinTechs, never mind the choice between RTP and FedNow. It’s given banks plenty of reasons not to modernize.

“Many banks see Zelle as doing a good enough job, but Zelle only solves part of the instant payment puzzle. Corporate use cases – the biggest opportunity US banks – are being left on the table opening the door to first moves and FinTechs to grab market share.

“There is no going back. To compete globally, the US economy needs to adopt instant payments to accrue all the benefits of cash flow and reduced working capital for workers and businesses. Instant payments reduce company failures, and late payments. From keeping the lights on for gig workers, to insurance payouts, from treasury to making payroll. It is simple: to maintain the position of the world’s largest, most dynamic economy, the US cannot afford to be a laggard in payments.

“In India, Brazil, Asia and Europe, businesses and workers all have access to faster more flexible ways to move money. Banks that lead instant payments and overlay services will gather greater market share as US companies apply these tools to productivity and growth.”

ENDS

About RedCompass Labs

RedCompass Labs enables good payments and helps stop the bad. We are experts in ISO20022 based payments, instant payments, cross-border payments, and payments interoperability. We use the latest micro-services technology and deep payment knowledge to deliver payment transformation projects, using our Payments Modernization Toolkit. These solutions help our clients accelerate their payments modernization programs, reducing costs and regulatory risk.

RedCompass Labs also offers advanced financial crime investigation tools, including the RedFlag Accelerator, a global reference for detecting modern slavery, human trafficking, and child sexual exploitation red flags in the financial industry. The RedFlag Accelerator provides investigation guides, advanced algorithms, Generative AI investigator interfaces, and a comprehensive online portal for our clients.

With offices in London, Warsaw, Brussels, Singapore, Tokyo, Miami, Toronto, and Pune, we support clients worldwide.

To learn more about RedCompass Labs and its services, visit our website at www.redcompasslabs.com.

Media contact:

Michael Deeny/Aodhán Cunningham/Maeve Preston

Chatsworth Communications

RedCompassLabs@chatsworthcommunications.com