Interoperability Will Be Instant Payments Catalyst

In today’s world, convenience and efficiency are more highly valued than ever.

Therefore, it would seem that instant payments, or the ability to transfer money in real time, allowing for immediate access to funds and faster settlement of transactions, would be a hit among both consumers and businesses.

But while the concept of instant payments may seem straightforward, the implementation and widespread adoption of this technology requires careful consideration and effort. Long-established habits and traditional payment methods are deeply ingrained in our society, making it difficult to shift away from the familiar ways of doing things.

“Despite the promise of faster payments, changes in behavior of both consumers and business habits, it tends to take time,” Michael Haney, head of product strategy at Galileo Financial Technologies, told PYMNTS for the series “What’s Next in Payments – Instant Payments: What Will Turbocharge Instant Payments growth in 2024?”

“We are spoiled with a plethora of different ways to move money in this country and indeed around the world. But I think the place to really start the conversation is recognizing that there is indeed strong customer interest. We’ve crossed that 50% threshold for both consumers and businesses,” Haney said.

Citing data from the Federal Reserve and other industry studies, Haney said that 61% of millennials were interested in faster account-to-account payments, while 71% were interested in consumer-to-business scenarios. Similarly, over 50% of businesses express interest, with 22% anticipating a shift to faster payments for outbound transactions.

The numbers show that instant payments are transforming the landscape of financial transactions, promising speed and efficiency.

Use Cases Driving Adoption by Consumers and Businesses

Several use cases are driving the adoption of instant payments.

Haney noted that consumers are eager to pay bills on time, eliminating the delays and uncertainties associated with traditional payment methods. This is why peer-to-peer payments (P2P), pay-by-bank at merchants and faster account-to-account transfers between different banks are gaining traction.

Businesses, too, are exploring the benefits of instant payments for bill payments, customer refunds, employee payments and the gig economy.

“There is no shortage of use cases, but clearly, there will still be some use cases where real time may not make sense for each and every time,” Haney said. “Once you have that recognition, you then have to start building your business case to implement both the infrastructure and the operational procedures to integrate instant payments.”

Pricing strategies and integration into existing ecosystems are also crucial considerations, he noted, adding that businesses must address concerns related to accounting systems, tracking capabilities, payment reversals and fraud prevention to gain customer trust and confidence.

“You’re going to have to be prepared to educate. Particularly in the business world, they don’t want to revamp their accounting systems and processes,” Haney said.

Solving for Friction Can Accelerate Adoption

Beyond all that, the benefits of instant payments don’t come without their fair share of concerns.

One prominent concern associated with instant payments, given its irrevocable nature, is the potential increase in fraud.

Acknowledging this, Haney emphasized the importance of leveraging existing fraud mitigation techniques.

While faster payments may increase the risk of fraud, current fraud mitigation techniques, such as customer identification, authentication, transaction limits, real-time transaction blocking and automated alerts, can still be applied in a faster-payments environment.

Additionally, the industry is witnessing advancements in fraud detection models through machine learning, improved risk mitigation techniques and the use of tokenization, all of which will have a role to play within the instant payments landscape, Haney said.

“It’s a dramatic improvement in the detection algorithms,” he said.

When it comes to the future, Haney said interoperability between different payment networks, such as RTP® Network and the FedNow® System, will likely be explored.

“I think the industry will recognize that interoperability is a good thing,” he said. “It’s the ‘rising tides raises all boats’ philosophy.”

In the immediate future, including the coming new year, Haney said that the adoption of instant payments is expected to continue growing with low double-digit growth.

Haney said with a focus on enhancing fraud and risk mitigation measures, expanding interoperability and catering to diverse use cases, the financial ecosystem is poised to embrace the era of instant payments in 2024 and beyond.