The RTP Network, the instant-payments organization operated by The Clearing House, crossed a milestone by processing $1 billion in a single day for the first time on June 28. RTP, which is owned by 22 large global banks, also set quarterly records for transaction volume and value, handling 82 million transactions and totaling $55 billion. Payment volume grew 7%, while overall payment value jumped 30% in Q2.

This success followed numerous records set by the RTP Network in Q1, handling a then-record 76 million transactions valued at $42 billion.

The Clearing House didn’t announce the billion-dollar milestone until ten days after it happened because the organization wanted to determine the factors contributing to reaching this mark. Ultimately, the organization determined there was a myriad of elements involved.

“The increase in transaction value is due to broad adoption of the RTP network across a number of use cases, including account-to-account transfers, title insurance and mortgage closing payments, gig economy payouts, earned wage access, and more,” Margaret Weichert, Chief Product Officer at The Clearing House, said in a press release. “Banks and credit unions that have joined the RTP network are seeing how instant payments can grow deposits, while meeting member and customer expectations for instant payment availability, 24/7.”

Facing the Competition

The progress for RTP follows a year of competition with the Federal Reserve’s rival payments system, FedNow. A survey from earlier this year found that 61% of financial institutions have implemented RTP or are in the process of doing so.

One area of success has been the RTP Network’s efforts to onboard smaller financial institutions. Roughly 90% of the financial institutions on its system have assets of less than $10 billion. At the same time, RTP now serves 225,000 unique businesses monthly, up from 105,000 a year ago. While businesses account for 80% of RTP transactions, 95% of those payments are received by consumers, according to TCH.

The network also reports a significant increase in consumer usage, with more than five million unique consumers sending instant payments every month, a figure that has doubled over the past year. RTP credits this growth in consumer usage to the widespread adoption of mobile wallets. 

The post RTP’s First Billion Dollar Day Highlights a Bang-Up Year appeared first on PaymentsJournal.

Although the adoption of real-time payments (RTP) continues to grow, most banks and credit unions still do not see real-time payments as a future profit center.  

According to a recent report from Cornerstone Advisors, fewer than 20% of American banks anticipate that commercial real-time payments will become a revenue generator for them in the next three years, and only 10% expect retail real-time payments to generate revenue. The number is even lower among credit unions, with just 7% expecting either commercial or retail RTP to become a profit center.

Nevertheless, these institutions plan to make more use of real-time payments. Half of the banks and credit unions surveyed expect to be up and running with RTP by the end of 2024.

Roughly half of respondents said they plan to offer real-time payment services through FedNow. In contrast, nearly a quarter of banks plan to offer payments through The Clearing House’s RTP rail, while 12% of credit unions said the same.

Seeking Profits

The study points out that many banks see real-time payments as a cost, potentially cannibalizing their profits from wire transfers. But businesses have been willing to pay extra for speed in these transactions. Cornerstone said that if $2.50 is a fair price for sending $1,000, then $100 should be reasonable for sending (or receiving) $100,000 much more quickly.

Banks and credit unions recognize that business-to-business (B2B) payments are likely the biggest reason to move towards RTP. B2B payments were the most commonly cited as the most important potential use case, followed by payroll payments.

Account-to-account (A2A) transfers are also a notable use case, and for credit unions, they remain No. 1.  For banks, A2A payments are tied with last-minute consumer payments as important real-time payments use cases.

Overall, increased interest in real-time payments has manifested in new attention toward payments hubs. The survey found that more financial institutions are planning to invest in a new payment hub or replace an existing one. In both 2022 and 2023, just 4% of banks and credit unions mentioned a new or replacement payments hub.

The post Why Banks and Credit Unions Are Moving Slowly to Real-Time Payments appeared first on PaymentsJournal.

Traditional payment gateways have often hindered banks in their efforts to modernize their payment systems. Transitioning to real-time payment capabilities demands dismantling outdated procedures, a task many banks are unprepared to take on.

A recent PaymentsJournal webinar featuring Miriam Sheril, Head of US Product at Form3, Peter Gordon, Founder and Managing Partner at Atlantic Fintech Advisors, and James Wester, Co-Head of Payments at Javelin Strategy & Research, took a closer look at how a platform-based approach is helping banks commercialize their value-added services and develop a more client-centric service model when it comes to payments.

Battling the Legacy

For banks venturing into real-time payments, grappling with legacy back-office technology can be frustrating. Real-time payments hinge on delivering seamless end-user experiences, a demand that traditional technologies have long struggled to meet, especially considering customers’ 24/7 expectations. Implementing FedNow and the RTP network effectively necessitates embracing modern technologies.

“In the U.S., we’re going to see more banks needing to modernize their technology at the back end to make this happen,” Gordon said. “The legacy infrastructure that banks have—batch-oriented, mainframe-based systems—can’t handle the 24/7/365 scaling. It also means that we’re moving from silo-based systems to enterprise-based systems and platforms.”

Managing individual transactions for FedNow and RTP differs significantly from the batch-oriented processing typical of ACH transactions. The infrastructure needs to become modern and cloud-based. Regulatory concerns, such as anti-money-laundering laws, further impel banks toward modernizing their architecture. By providing more seamless solutions through better technology, fintechs like Stripe and PayPal have been pushing banks to turn toward cloud solutions and APIs that allow banks to scale and work more directly with fintechs.

“We focus on trying to insulate banks and financial institutions from having to deal with some of the nitty-gritty annoying stuff, so that they can focus on their customers, their end users, and where they want to make money,” Sheril said. “A truly seamless API will cover all the rails, instead of the bank having to worry about ISO spec version this for RTP, and version that for FedNow, and a third version for Fedwire.“

Wrestling With Complexity

Financial institutions are often stymied by the technological complexity of payments. The systems in place worked well for a long time, but banks are beginning to realize they’re being forced along the path to modernization. And it’s not going to get simpler, primarily because of the silos within their operations.

A large financial institution operates numerous disparate channels, each with its own dedicated system tailored for functions like treasury and wealth management. Yet there’s growing desire within banks for payments to present a unified front, emanating seamlessly from a singular source. This entails breaking down the silos so there’s a consistent experience across the middle and back office, as well as throughout the infrastructure and among technologists.

With this push for new technology, many banks accustomed to constructing their own infrastructure are opting against replacing outdated system internally. Instead, they’re forging partnerships with companies specializing in modern technologies.

“Instead of it being one of the 75,000 things I do, streamline the piece that matters to me,” Sheril said. “Now that we have the ability to have better architecture that’s easier to implement, that is going to be helpful in terms of where banks are going across lines of business and tearing down silos.”

Ultimately, customers simply want convenience. However, there’s growing awareness among customers regarding the various payment methods available to them. They can opt for installments plans, direct transfers, or transactions that accrue points. Financial institutions want to present customers with all of these options.

“That’s where that technology kicks in and says to the financial institution, you have more power now,” Wester said. “Financial institutions have always just looked at a payment as a payment. But now that we’re seeing consumers care, there are ways that you can use that to reinforce the relationship.”

In many instances, customers fully appreciate the advantages of real-time payments only once they’ve had the opportunity to use them. Real estate firms, for instance, are showing interest in real-time payments not because they’re concerned about where their settlements occur but because they want to close deals on Saturdays, a day when most realtors are active.

Consider another scenario where instant payments afford retailers the ability to reconcile transactions at the end of the day and receive funds instantly. For example, on a Friday night, a restaurant reconciling its accounts can simply press a button, and the funds are deposited into its account, enabling them to promptly pay the wait staff.

However, many banks have been unable to facilitate such transactions on Saturdays due to wire closures. As a result, these options emerge as new products and services for consumers and represent novel competitive avenues for financial institutions.

Adventures in the Cloud

Conducting operations in the cloud allows banks to integrate many of their services, yet there has been a reluctance to use such services.

“Ten years ago I was at a conference about the cloud, and the CIO of a relatively large bank said from the stage, ‘We will never put any mission-critical stuff in the cloud. It’s just too risky,’” Wester said. “And the bankers in the audience all nodded sagely. ‘No, that will never happen.’”

Yet more banks are discovering that using a platform-as-a-service provider can reduce costs significantly if it’s done right. They can end up paying a fraction of the cost of building and maintaining a data center.

Another advantage of the cloud is translation. It can take an ACH file and convert it to an ISO 20022 format, maybe even enrich the payment instructions with information, then pass it through a payment system. Those who understand how rich this data is will be the real winners.

Piece by Piece

Implementing new processes in today’s payments landscape means dismantling old ones. It’s important for organizations not to underestimate the challenges associated with decommissioning legacy systems and instead focus on this task with purpose.

Organizations should embark on a journey toward modernization, starting by insulating themselves from risks and addressing their least risky areas first. It’s imperative to start with smaller aspects that can coexist alongside the legacy system. This incremental approach ensures that each step is modernized. Not everything needs to be moved at once.

“This is about getting something better out there and not waiting till your customers leave you for someone else,” Gordon said. “There are ways to do this that help you de-risk the whole migration. Some banks have only taken specific accounts and moved them over. Or only real-time payments. You can start real-time there, then move the other aspects over.”

Said Sheril: “The more complex these requirements get, the more modern the technology has to be. You can’t do it on old platforms. You have to do it on things that are quick. We can only do it because we are on a modern 24/7 platform. Banks need to get this modernization done, but they don’t want it to distract from the focus on what’s important to them, which is their customers and their revenue.”

The post Clearing the Decks for Real-Time Payments appeared first on PaymentsJournal.

Payments Canada has still not found a new CEO to replace Tracey Black, who ran the organization for more than five years before stepping down at the end of her term earlier this week. The delay is emblematic of the problems Canada has encountered in introducing its real-time payments system, which is now years in the making.

Canada is the only G20 country without such a system in place. The Real-Time Rail (RTR), Payments Canada’s proposed real-time payment system, is years behind schedule. Payments Canada originally targeted to have the system up and running by 2019, but has pushed the deadline back several times since.

In Payments Canada’s Q4 2023 report, Black wrote: “The next update on the RTR program will be in Q1 of 2024 and I look forward to sharing more with you about this critical program.”

The latest word is that the update—not the launch—will be released in the coming weeks.

Mysterious Delays

As far back as 2020, Payments Canada said it was selecting technology partners and beginning the building process for its real-time payments platform. The target date for RTR was set for 2022.

In 2021, Payments Canada announced that Canadian interbank network Interac would be the exchange solution provider for RTR, with Mastercard providing its clearing and settlement technology.

Last June, there were “current delivery delays” that were responsible for the latest pushback on the deadline. At that time, the target date was mid-2023.

But there have also been indications suggesting that Canada’s banking industry isn’t entirely sold on the necessity for the new system. Even despite Jeremy Kronick, Director of Canada’s Centre on Financial and Monetary Policy, estimating its benefits to the nation’s economy at $3.24 billion over the first five years.

Progress on Other Fronts 

Payments Canada has been active on other fronts, expanding its membership to include newer service providers and credit unions. However, this offers little comfort until the new payments system is ultimately launched.

“It’s not enough to have access to a payment system that does not yet exist,” Alex Vronces, executive director at Fintechs Canada, told the Canadian Press. “We need the payment system to exist.”

The post Canada’s Real-Time Payments Network: When Will It Ever Happen? appeared first on PaymentsJournal.

Visa and Checkbook are continuing their ongoing partnership, with a new multi-year initiative that aims to make instant payments more available for all.

“In today’s ‘always on’ world, businesses and consumers demand quick and convenient access to cash flow – whether paying insurance claims, disbursing wages, tips or rebates – speed and efficiency have become the name of the game,” said Yanilsa Gonzalez-Ore, North America Head, Visa Direct in a prepared statement.

Through this collaboration, both companies will focus on streamlining global money movement and facilitating fund disbursements through Visa Direct. This builds on their previous joint efforts; in 2021, Checkbook was part of the Visa FastTrack program and contributed to integrating Visa’s Virtual Cards solutions.

Faster Payments for Businesses and Consumers

The collaboration between Visa and Checkbook signifies a step forward in the evolution of financial transactions. Instant payments, particularly with the release of FedNow last year, have emerged as a game-changer, offering speed and convenience compared to traditional payment methods.

Instant payments have the potential to transform varies areas of financial transactions—from payroll processing and supplier payments to peer-to-peer transfers. They also help reduce administrative burdens, minimize delays, and enhance overall business operations. According to Elisa Tavilla, Director of Debit at Javelin Strategy & Research, as more financial institutions adopt real-time payments, funds will move quicker than they do on the current systems those payments rely on: ACH.

Learning from Global Success

Although the acceleration of instant payments in the U.S. is imminent, there is much to lean from global innovation and adoption trends.

Brazil’s instant payments service, Pix, serves as a prime example of success in this arena. Processing  more than three billion transactions per month, Pix boasts a staggering 70% adoption rate among  Brazilian adults. Brazil’s central bank has recently spearheaded initiatives to enhance cross-border payments, positioning Pix as a frontrunner in these efforts and offering valuable insights for other countries seeking to develop their own instant payments solutions.

Similarly, the European Union Council has made significant strides in promoting instant payments, evidenced by an upcoming law slated to take effect in April. This legislation will mandate the full availability of instant payments in euros across the EU, signaling a commitment to advancing the accessibility and efficiency of payment systems within the region.

The post Visa and Checkbook Set Out to Ramp up Instant Payments Availability appeared first on PaymentsJournal.

Faster payment methods are experiencing a surge in popularity as more consumers want to send and receive payments in a faster way. Real-time and faster payment networks such as FedNow, RTP, Same Day ACH, and Zelle, a peer-to-peer payment platform, are seeing rises in transaction volume and value as consumers demand more speed and convenience with their payments.

FedNow, the long-awaited instant payment service built by the Federal Reserve Bank, was launched on July 20, 2023, to facilitate the sending and receiving of funds within seconds. You could say that this launch completes the missing puzzle to establish a nationwide real-time payments solution.

In a recent report, 2024 Trends & Predictions: Debit Payments, Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, describes how merchants are navigating card fees, the future of debit payments, and what customers and merchants want.

How Merchants Navigate Card Fees

Doing business, of course, comes with costs. But for merchants, the persistent pain point involves paying credit card fees. These are fees paid to the credit card provider to complete credit card transactions. Current interchange fees range from 1% to 3% of the transaction amount.

These fees can potentially erode the bottom line, so merchants have sought a workaround solution to offset these costs. One way is to encourage consumers to use debit cards. The current cap on interchange fees for debit cards sits at 21 cents and 0.05% of the transaction value.

Tavilla detailed how two prominent players in the mobile phone industry, AT&T and T-Mobile, announced over the summer that for customers to receive their monthly discount via autopay, they must have their autopay set up with a debit card or a bank account.

Everlane, a clothing store, has also found a way to encourage consumers to pay without the debit card option. It’s an alternative payment method known as “Catch” that enables customers to pay through their bank account. When Catch is used as a payment method with Everlane, the customer earns store credit that can be used for any future purchases. Tavilla explains that although this is a niche option, a use case certainly exists.

The Future of Debit Payments is Instant

When it comes to the outlook on debit payments, the possibilities are endless.

“Consumers are increasingly using mobile wallets, like Apple Pay, Google Pay as well as others,” Tavilla said. “Many of the wallet users are using their debit cards to fund their payments through the wallet.

“There’s also been an uptick in contactless cards. Most debit cards are now contactless. Our data shows that 64% of consumers say that they have at least one debit card that is contactless. Shoppers are increasingly tapping to pay with debit cards and mobile phones, especially for everyday purchases.”

More forward-looking statements by Tavilla reveal that as more financial institutions adopt real-time payments, funds will move a lot faster than they do on the current system those payments rely on, which is ACH. With ACH, payments still need a couple of days to settle.

When it comes to moving money from P2P platforms to your bank, it can easily take a few days. However, certain banks have already made it possible to move funds instantly if they support real-time payments.

What Customers and Merchants Want

Customers and merchants ultimately share the same goal to meet their needs, and that is to pay less. Customers are budget-conscious, and they want to maximize savings while ensuring that they still receive value.

Merchants want to be able to control costs and ensure a profitable margin. This includes minimizing the amount they pay for transaction fees. “Regardless of whether you’re a consumer or merchant, cost reduction, savings, and discounts seem to be top of mind and an objective,” said Tavilla.

The post Instant Debit Payments: The Next Phase of Real-Time Payments appeared first on PaymentsJournal.

Instant payments are on the verge of becoming a profit center, according to a recent survey. Participants were asked how likely it is that B2B real-time payments will become a profit center for their bank within three years, and 37% indicated it was likely, while 14% expressed an even higher level of confidence. Only 8% said it’s unlikely to happen.

The report from Finzly also looked at the path to achieving this profitability. The strongest avenue appears to be expanding the use of FedNow. 

After launching in July, FedNow finished 2023 with more than 300 participating financial institutions. But the majority of those institutions are still using it for “receive only” services.

While half of Finzly survey respondents identified “fees” for enabling their customers to send and receive instant payments as a profit opportunity, only a handful recognized the potential of Request for Pay (RfP) as a value-added service. Additionally, when attendees were asked about the biggest profit opportunity with B2B real-time payments, only 15% cited “offering RfP.”

“Identifying and executing appropriate instant payment use cases is critical to meeting customers’ needs and generating revenue,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Being able to send and receive instant payments is also essential, especially to support RfP and other FedNow functions. While receive-only is a good start, financial institutions ultimately need to be able to send and receive funds in order to fully take advantage of real-time payment capabilities that support innovative products.” 

Rapid Payments, Rapid Adoption

Many companies are willing to pay for speedier payments, with 50% of businesses indicating as much per the Finzly survey. Respondents said that $2.50 seemed like a fair price for sending $1,000, while $100 was a reasonable fee for receiving $100,000 more quickly.

Another survey from the U.S. Faster Payments Council found that 88% of financial institutions said that they will implement FedNow and/or RTP within the next two years. RTP has been implemented more, with 61% of FIs saying that process is underway or complete. FedNow has been or soon will be implemented by 44% of respondents. Only 12% of FIs said they plan to wait more than three years to implement these payment services—or won’t implement them at all.

The post Banks’ Next Profit Center: Instant Payments appeared first on PaymentsJournal.

Real-time money movement (RTMM) is gaining traction worldwide. Although real-time payments only account for only a 1.2% share of the total payments volume in the US in 2022, transactions are expected to grow 364% by 2026¹. As more businesses and consumers expect faster, more efficient payments, this trend will only grow, with McKinsey predicting that by 2027, more than half of all payment transactions will occur in real-time (a threefold increase from today). For financial institutions (FIs), RTMM’s explosive growth is an opportunity to grow their revenue and capture new customers (86% of whom see value in RTMM²). The biggest roadblock to this growth has been outdated mindsets, roadblocks keeping FIs in the United States from getting on board and adopting this potentially lucrative payment system.

FIs have been reluctant to adopt RTMM solutions based on a few commonly held misconceptions. They include the beliefs that:

• RTMM leads to increased fraud risk
• There’s a lack of consumer interest in real-time payments
• There’s no risk in waiting to adopt, and high-risk in early adoption

These common beliefs cannot be further from the truth. Subscribing to these misunderstandings can lead to disastrous results. In today’s rapidly evolving payments landscape, standing on the sideline endangers FIs, which could lose their competitive edge as well as a significant portion of potential market share.

So what is the truth about RTMM systems and its incorporation into both the financial and fraud landscapes? NeuroID’s guidebook, Three Common Myths About Real-Time Money Movement & Fraud and How They’re Hurting Your Revenue, aims to dispel commonly held myths and discover the truth behind RTMM and fraud.

Does RTMM Adoption Lead to Increased Fraud Risk?

Fraud experts still hold on to the belief that faster payments can lead to faster fraud. And it’s an understandable fear: with no way of recovering money lost in real-time, RTMM systems seem especially scary. Fraud involving authorized push payments (APP) is on the rise as the immediacy and finality of these payments give consumers a much shorter timeframe in which to dispute or revoke them³.

But it’s not the speed that makes RTMM vulnerable, but the outdated fraud prevention systems that simply can’t adjust to new styles and speeds of bad actors. Reactionary responses and manual work can’t fight real-time, instantaneous threats.

As funds funneled through RTMM move faster, fraud solutions must keep up the pace. This means employing fraud prevention orchestration technology that reduces manual operations and can make more deterministic decisions higher in the fraud capture funnel. Switching to real-time fraud prevention automation makes the process simpler, repeatable, and more accurate—enabling FIs to capture both the fraud and opportunity that comes with RTMM systems.  

Do U.S Consumers Actually Care About Real-Time Payments?

Data highlighted in the NeuroID report reveals that only 18% of banks and 12% of credit unions actually provide RTMM services, paving the way for the argument that consumer demand is lacking. However, Generation Z is leading the way in the world of faster digital payments. In fact, 66% of that cohort use digital wallets in virtually all cases. Plus, 51% stated that digital transactions will soon displace physical transactions.

Furthermore, across various generations, close to 80% of consumers want to make payments to businesses directly and quickly. These stats clearly show that U.S. consumers, regardless of age, desire to make real-time payments as it enables them to send and receive money quickly as well as have more control over their finances.

The rise and popularity of peer-to-peer payments (P2P) are also indicative of this consumer desire to access real-time payments. Some of the most popular providers include Zelle, Venmo, Visa Direct, and Mastercard Send. The new launch of FedNow is going to continue to fuel this consumer demand.

But P2P platforms have not been without controversy. Zelle has been in the headlines for a lack of consumer protection against fraudulent transactions. Zelle’s parent company, Early Warning Services, reported that Zelle users have lost approximately $440 million to fraudsters.

Despite the lack of fraud protection, customers continue to use this platform for sending money instantly and irreversibly. Convenience is the deciding factor. For FIs, RTMM systems aren’t just about meeting an immediate consumer demand—they’re about securing a future customer base. With Gen Z exhibiting high loyalty towards FIs they trust, meeting their needs with RTMM adoption means establishing a long-term customer base.

RTMM Is a Must to Stay in the Game

RTMM is not just another strategy. It’s a competitive necessity. Traditional banking services such as ACH payments and wire transfers still have their place, but for some consumers, they are simply too slow for the rapidly evolving payments landscape. Such services can take hours or even days for funds to clear. This is no longer a viable option for those consumers who want faster payments and immediate access to their funds.

RTMM systems are still developing, and some financial institutions don’t want to take unnecessary risks when it comes to implementing them. But with 15% of consumers saying RTMM availability would be a top factor in changing banks, waiting is also risky. If you competitors have a more aggressive timeline than you do, you’ll lose real revenue: it’s as simple as that⁴.

Behavioral Analytic’s Place in Combatting Real-Time Fraud

Another issue driving hesitancy among FIs is updating fraud prevention legacy infrastructure and technologies. Revamping these systems to facilitate and support real-time payments could take considerable time and expense. But it doesn’t have to be an all-or-nothing approach: there are real-time fraud solutions able to keep up with RTMM-based fraud that don’t require a rip-and-replace, and can instead work as a new, unique signal within your fraud stack.

When it comes to tackling the potential for fraud head-on, financial institutions must partner with a solution provider that leverages behavioral analytics to detect incidents of fraud. Within it’s role as a behavioral analytics leader, NeuroID is breaking down barriers and enabling safe and secure RTMM adoption.

A pioneer in the realm of behavioral analytics, NeuroID detects the intention of users through their online behavioral patterns. NeuroID alerts to fraudulent activity by differentiating between legitimate users and potential bad actors based on form interactions (such as swipes, clicks, and name entries). All decisions are enacted in real time for the safer integration of instant payments.

NeuroID’s solution is lightning-fast, with the ability to approve, deny, and review transactions in less than a second.

Closing Thoughts

RTMM will soon be table stakes for FIs. Although adopting RTMM without inviting fraud does have challenges, they are not insurmountable.

With RTMM fraud, time is of the essence. It is critical to have a solution that can make real-time decisions on who is trustworthy, and who is treacherous. Behavioral analytics are a game-changer to ensuring proactive prevention in real-time.

Leveraging the power of behavioral analytics, FIs get the information they need to streamline decision-making and avoid fraud costs, while still reaping the benefits of RTMM adoption.

Interested in learning more? Register for NeuroID’s The Dark Side of Speed webinar series. 

¹ https://insiderealtime.aciworldwide.com/Fight-Real-Time-Payments-Fraud-in-Three-Simple-Steps
² https://insights.discoverglobalnetwork.com/fintech/5-payment-trends-in-fintech
³ https://www.pymnts.com/bank-regulation/2023/senators-warn-regulators-on-zelle-fraud-risks/
⁴ https://www.accenture.com/us-en/insights/banking/payments-gets-personal-strategies-stay-relevant

The post Real-Time Money Movement: Dispelling the Myths and Embracing the Opportunities appeared first on PaymentsJournal.

Instant payments are poised to accelerate in the U.S. now that FedNow has launched. There’s an opportunity for banks and credit unions to take the lead again in payments. They can offer a cheap, convenient, fast and secure way to move money that U.S. consumers and businesses didn’t know was possible.

Like ACH, value can be created on instant payment rails that doesn’t necessarily require a catchy name that later becomes a verb. Consumers don’t know ACH, but they do know direct deposit – 94% of Americans get paid that way.

Unlocking instant payments in the U.S. will require innovation. When it comes to instant payments innovation and adoption, Brazil is one of the best markets to learn from. Pix is Brazil’s instant payments scheme and is arguably the most successful scheme worldwide in terms of adoption. In less than 3 years, the number of Pix transactions exceeds both credit and debit combined. Some 70% of Brazilian adults use Pix and there are over 3 billion Pix transactions per month (vs. ~30 million in the U.S.).

The innovations happening on top of the Pix rail are remarkable. Below are just a few examples that are enabling Pix to reach its full potential that may serve as inspiration for the U.S. market.

Pix Credit

Pix Credit is a product that allows a consumer to pay using Pix and re-pay their financial institution over time. Nubank, Digio, Banco BV and MercadoPago offer this today, and other very large Brazilian banks are gearing up to launch their version of Pix Credit soon.

With Pix Credit, cards don’t need to be issued, the payment networks and acquirers don’t need to be involved in transactions. And, Financial Institutions can charge interest much like with credit cards.

There are several reasons why consumers might use Pix Credit.

• If they have an urgent need to make a payment, but don’t have balance in their account (e.g. emergency medical or utility bill).
• When a store offers a discount on purchases for payment with Pix – consumers can take advantage of the discount, but pay back over time.
• Repaying for purchases over time may align better with their incoming cash flow.

Pix Credit is a way for financial institutions to offer a credit card-like product using the instant payment rails, but profit in a way that doesn’t hurt merchants by offering a more efficient payment system with fewer players.

QR Codes

QR codes are accelerating consumer-to-business instant payments in Brazil.

Currently, over 30% of the 3 billion Pix instant payments a month are person-to-business transactions (up from 13% two years ago).

This P2B Pix adoption was made possible by QR codes. When consumers go to a store to pay with Pix, they don’t share their bank account information with the cashier at checkout. Instead, the merchant presents a QR Code, the consumer scans it from their mobile phone, reviews the transaction details on their phone, hits pay, and the transaction is done.

This P2B instant payment is simple, fast and all that’s needed is a mobile phone. The exchange of bank accounts and related information is all handled behind the scenes via QR code.

Merchants and billers love Pix. It’s 1/10th of the cost of credit cards and they get their money instantly. As a result, they are offering material discounts to consumers if they pay with Pix, using QR codes. Amazon, for example, offered consumers an additional 10% off if they paid with Pix on Amazon Prime Day this year.

Amazon isn’t the only company that presents a QR code to a consumer at online checkout. QR codes are commonly used to initiate instant payments across many verticals and at many recognizable brands. Examples include large retailers, mobile operators, fast food (e.g. McDonald’s, Burger King, Pizza Hut), Gasoline (Shell), e-commerce and many others.

Instant payments to all of these verticals and companies wouldn’t be possible without QR code technology. Also the use of QR codes grew much faster than cards in the past because there were no hardware requirements. The QR code can be presented on the payment terminal, cashiering system or printed on the receipt. Any payment alternative requiring new hardware in every store is likely to fail.

Loyalty Point Redemption

One of the most creative applications of the Pix rail is its ability to process different currencies—such as loyalty points.

With over 400 partners around the world, ties to more than 40 Financial Institutions, and approximately 40 million consumers on their platform, one of the biggest rewards programs in Brazil recently began leveraging the Pix rail for points redemption. It’s a win-win for both consumers and merchants.

Consumers earn points when making purchases from select partners. When they redeem those points, they pay directly from their mobile app and the transaction flows over the Pix rail. The merchant receives cash instantly in its bank account, and the loyalty points are deducted instantly from the consumer’s loyalty account.

What Now?

RTP and FedNow enable U.S. financial institutions to meet modern digital demands with a 21st century payments solution. Adoption of instant payments requires pairing innovation with these rails. And, the blueprint of what’s possible is available in other countries who are 3-5 years ahead of the U.S.

“For FedNow to reach its full potential, we’ll need to harness the creative energies of all kinds of people including fintechs to think about how we enable this platform for innovation.” – Mark Gould, Chief Payments Executive, Federal Reserve on Fintech Takes Podcast Aug 23, 2023

No one in Brazil thought Pix would be a success when it launched. Financial institutions who weren’t prepared lost commercial business as a result. While it’s impossible to predict the inflection point of when instant payments will accelerate in the U.S., it is widely-agreed that instant payments are coming. What are you waiting for?

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The U.S. Faster Payments Council’s Secure and Instant Payments API Work Group (APIWG) released a new white paper with a clear objective: to establish definitive best practices for instant payment APIs.

Although their focus wasn’t on creating new API standards, the work group dedicated itself to providing highly relevant best practices that can seamlessly support the diverse array of standards and proprietary APIs emerging within the industry.

One standout revelation from their research underscores the intrinsic link between the maturity of these APIs and the evolution of open banking infrastructure. A mature open banking infrastructure serves as the linchpin for seamless interoperability among banks, fintech solution providers, and payment networks. This advanced infrastructure not only facilitates easy connectivity of instant payment APIs across different platforms but amplifies the potential for widespread adoption, ensuring a broader reach and scalability for instant payment capabilities.

Recommended Best Practices for Instant Payment APIs

The group found that there are several best practices that can be implemented to accelerate the growth and adoption of instant payments. They are as follows:

• API registration should be automated.
• For user authentication, develop minimum defined standards.
• Provide additional payment data to enhance payment approval.
• Integrate quick look-up directory utilities to accelerate transaction initiation set-up.
• Embed risk management, fraud, and sanction screening controls to ramp up security and protect users.

More Collaboration is Key

The U.S. is facing its own unique challenges impeding the nationwide adoption of instant payments. A considerable number of large companies are still tethered to legacy financial systems that are not equipped to handle real-time payment processing. The integration of APIs into these legacy systems demands substantial investments and ongoing maintenance efforts.

Compounding these challenges is the prevailing lack of standardization in the U.S. instant payment landscape. The ecosystem is marked by fragmentation, with disparate payment networks and providers each wielding proprietary APIs and distinct requirements. The lack of standardization adds complexity, hindering companies from selecting APIs that would integrate easily across different platforms.

“Standardized instant payment APIs would help facilitate ease of adoption, interoperability, and scale,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Unlike some other countries, the U.S. does not have regulatory mandates for real-time payments. However, industry collaboration, such as the FPC’s APIWG, can help establish best practices and consistency for instant payment APIs, and make it easier for FIs and service providers to execute new use cases more efficiently.”

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