Seven years after the launch of The Clearing House’s RTP network and 15 months into the FedNow era, instant payments are proliferating, if not quite a household name. Small businesses and the bankers who serve them are searching for a set of “killer use cases” that will serve as catalysts for widespread adoption.
A new report from Javelin Strategy & Research, Identifying ‘Killer Use Cases’ in Small-Business Instant Payments, examines how the push to implement instant payment systems in the United States is accelerating. Although early adopters are already using instant payments for urgent transactions, payroll, and inventory management, most small businesses remain unsure of how these systems work or the benefits of usage.
Breaking Through to Understanding
Most small businesses are still looking for compelling use cases to prompt them to adopt instant payments. Many are experimenting with instant payments for such things as emergency payments to a supplier on a Sunday night, last-minute payroll adjustments, just-in-time inventory purchases, and large, specialized transactions. Yet awareness among the general small-business market remains low, and misunderstandings abound related to what “real-time” or “instant” payments actually entail, let alone how they could improve business operations.
To prepare the new report, Javelin received 400 open-ended responses from business owners who talked about how they are using real-time payments. One of the important findings this highlighted was the huge gaps in understanding. When Javelin asked if these businesspeople were using real-time payments, they often responded, “Yeah, I use PayPal or Zelle all the time.”
“They often conflate instant payments rails like FedNow and RTP with PayPal, or even with an instant transfer they might happen internally with their bank,” said Ian Benton, a Senior Analyst in Digital Banking at Javelin and the lead author of the report. “But it’s still going to take a few days for an ACH. I don’t think they fully understand the value of transferring money instantly between two different bank accounts or two different banks.”
Many of the respondents also failed to grasp the anytime aspect of instant payments. Being able to send a payment on the weekend or at night would be more valuable for many business owners than real-time processing.
The Importance of Messaging
Another overlooked advantage is the messaging capabilities attached to instant payments. FedNow and RTP have messaging attached directly to the payment itself. That allows merchants to include remittance information or to flag a partial payment they need to follow up on. Banks would do well to emphasize these benefits for the user experience when they promote instant payments.
“Business owners don’t have the expertise or the time to sift through their digital banking environments to figure out how to initiate an ACH or schedule it for the future,” Benton said. “So getting the UX right is going to be really important. Ultimately, this is going to go to intelligent payments routing, where you can say ‘This is who I want to pay. This is how. This is when I want the payment to arrive, and this is how much I’m willing to pay for that to happen.’ And that’s all you need to know.”
Getting Paid Faster
From a business owner’s perspective, the major selling point is payment acceptance. Everybody wants to get paid quicker. For banks looking to impress this feature on the general business audience, especially if they get paid by consumers rather than other businesses, being able to accept payments in real time will be critical.
The Javelin survey confirmed this. Business owners said outgoing payments are driven by urgency and unexpected circumstances. Some of the benefits cited by the comments Javelin received include:
- To make payroll and pay loans, credit cards, revolving credit lines, utility bills, and insurance premiums
- Emergencies and quick payments to employees
- To cover unexpected invoices
- Urgent payments to vendors
- When something is needed quickly on the weekends
“Imagine you can just invoice a customer, or send an electronic invoice and they can pay you in real time,” Benton said. “That’s a really valuable use case for a general audience using outgoing payments, if you deal with suppliers. Being able to make a last-minute payment three days quicker than your competitors, or being able to do it on the weekend, or reimbursing your contractors or your employees. There are a lot of advantages for outgoing payments, but the number one low-hanging fruit is letting people collect payments more quickly.”