Credit Unions Find Their Gen Z Edge in Faster Payments

Instant payments have shifted from a technological luxury to an existential necessity for traditional financial institutions (FIs). Driven in large part by the demands of Generation Z, the first cohort of true digital natives, the expectation for immediate fund flows is reshaping the competitive landscape.

PYMNTS Intelligence research indicates that approximately 74% of consumers currently use instant payments. For FIs, the risk of inaction is high; further research found that Gen Z members are more than twice as likely to switch institutions as the general population, often moving toward FinTech competitors that offer the seamless, real-time experiences they crave.

The Gen Z Catalyst

Generation Z’s preference for speed is rooted in their digital-native lifestyle and unique economic pressures. Many members of this demographic work in the gig economy or get paid by the hour, meaning that waiting several days for traditional ACH settlements can result in immediate negative consequences, such as late fees or the inability to purchase basic essentials like groceries and gas.

Consequently, Gen Z is up to three times more likely than older generations to adopt alternative payment methods, including digital wallets, which saw a 32% surge in usage in 2023 alone. They increasingly view slow payment windows as a significant pain point and are even willing to pay small fees to guarantee immediate settlement.

To win this generation’s loyalty, credit unions and banks must bridge the gap between traditional banking hours and the 24/7 digital reality.

Overcoming Implementation Challenges

Despite the clear demand, many FIs—particularly smaller credit unions—remain on the sidelines due to significant structural and operational hurdles. One of the primary barriers is the fragmented technical landscape; connecting to various payment rails like the RTP® Network and FedNow® Service requires complex integration with existing, often outdated, core systems. In fact, 73% of financial institutions cite legacy systems as a major roadblock to modernization.

Financial concerns also loom large, as 87.8% of FIs identify high implementation costs as a major deterrent. Many institutions have traditionally viewed payments as a cost center rather than a strategic asset, making it difficult to justify the expenses associated with 24/7 liquidity support and operational infrastructure.

Furthermore, there is a persistent fear of fraud. However, pioneers in the space have found that fraud is more often tied to account takeovers than the speed of the rail itself, and can be mitigated through multi-factor authentication and velocity-based controls.

How FIs Are Accomplishing the Shift

To navigate these challenges, successful FIs are adopting a cautious, phased approach to implementation. Rather than launching full “send and receive” capabilities simultaneously, many begin with receive-only functionality, according to PYMNTS Intelligence research. This allows the organization to build internal confidence, observe member behavior and manage liquidity without the immediate risks associated with outbound real-time transfers.

Collaboration with service providers has also emerged as a critical shortcut to modernization. By partnering with technology firms or corporate credit unions, FIs can bypass the need for extensive internal development and preserve their limited core and web development resources.

These partnerships can reduce implementation timelines from over a year to as little as three months. These modern platforms often provide a unified service that handles smart routing between different rails like the RTP Network and FedNow Service, simplifying the experience for both the institution and the member.

The Strategic Payoff

FIs that successfully implement instant payments are discovering benefits that extend far beyond simple transaction speed. Real-time rails unlock new monetization opportunities through FinTech partnerships and the conversion of expensive, manual processes into digital, instant status.

Additionally, PYMNTS Intelligence found that instant payments can enhance lending portfolios by providing immediate funding for auto loans or personal credit, meeting the Gen Z desire for “everything, everywhere, all at once.”

Ultimately, the shift to instant payments is about member retention and acquisition. By offering features like earned wage access and immediate digital wallet unloads, credit unions can leverage their traditional service advantages to compete effectively with digital-only banks.

As the financial landscape continues to evolve, the ability to provide round-the-clock access to funds has become the new baseline for authenticity and relevance in the eyes of the next generation of consumers.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.