Banking · January 08, 2025

Instant Payments: Benefits and Risks for Your Business

Over the past few years, two always-available instant payment systems have emerged to help businesses make and receive payments faster, access funds sooner, and more effectively manage cash flows and reconcilement. These platforms were promptly embraced by many large businesses and are now being adopted by small to medium-sized businesses across the US.

Learn how instant payments are helping organizations of all sizes streamline their financial processes—and how these payments may help enhance your business's cash management efforts.

How instant payments can work for your business

Instant payments in the US are currently processed through two systems: The Real-Time Payment, or RTP®, network, offered by The Clearing House®, and, more recently, the FedNow® network, offered by the Federal Reserve.

As the name suggests, both networks allow you to quickly receive payments with immediate access to funds. Money can be transferred 24 hours a day, 7 days per week, 365 days per year. All insured US depository institutions are eligible to use both networks.

There are several payment systems that offer near-instant payments, including PayPal®, Venmo®, Zelle®, Visa® Direct and Mastercard Send®, which leverage existing payment platforms provided by the card networks or ACH.

However, RTP and FedNow are different because they offer full functionalities of instant payments. More specifically, they:

  • Allow remittance information to accompany payment
  • Allow payment-related messages to accompany payment
  • Immediately send domestic payments 24 hours a day
  • Operate 7 days a week, 365 days a year
  • Post transactions to a receiver's account within seconds
  • Send payment confirmation to both the payee and payer

One difference between the two networks is their transaction limits. The FedNow network allows up to $500,000 per transaction, while the RTP network allows up to $1 million per transaction.

Benefits of adopting instant payments at your business

When you accept instant payments at your business, the benefits can go beyond receiving faster payments. Once established, your new payment system can have a positive impact on your order processing times, as well as fraud prevention and reconciliation efforts. It can even help you differentiate your business from competitors.

  • Receive payments in seconds: Allows for more precision with your liquidity management
  • Immediately access funds: Sends funds up to 2 days faster than ACH transactions
  • Transfer funds irrevocably: Ensures payments are finalized as soon as they're received
  • Confirm payer funds availability with transfer: Reduces risks associated with payment fraud
  • Receive funds 24/7/365: Allows after-hours, weekend and holiday transactions to proceed immediately
  • Get robust data with funds: Helps accounts receivable teams streamline their payment reconciliation
  • Send supplemental messaging: Allows for significantly increased transparency between payers and payees
  • Stay up to date with the newest available payment system: Helps differentiate your business from competitors

Unlocking the benefits of ISO 20022

In a recent webinar, Matt Ribbens, head of treasury product management at First Citizens, discusses the importance of understanding ISO 20022 as instant payments continue to grow. Its expanded data capacity can help streamline inventory planning, improve reconciliation and provide deeper insights into transactions.

In the excerpt below, Ribbens highlights the value of integrating enterprise resource planning, or ERP, systems with instant payment platforms for better data and decision-making.

Preparing for ISO 20022 video

Matt Ribbens: The one thing I would say is if you haven't really heard of ISO 20022, it's probably good just to learn a little bit about it, just the basics. You don't have to become an expert overnight or by March 10th.

But I would say after that point in time, there's going to be data that you may be able to provide in the payment, which may come from your ERP system. So, if you are working with an ERP, have a conversation with them as well to see if they're ready for this and sort of how that's going to help you facilitate your payments going forward, how that may be something you can take advantage of as a recipient of these payments.

So it may help you in terms of inventory planning. It may help you in terms of other aspects about the business that really the proprietary formats were limited in the nature of what they could carry. And, so just, you know, starting to think about how could you use data better now that you have access to this.

And, for example, there's, you know, now about 1,500 fields that are in the ISO 20022 format that now can carry data and more characters than were possible to be carried in proprietary formats of the past. So there's going to be more data with payments that you can now take advantage of going forward.

RTP network adoption is rapidly increasing

Given the range of benefits RTP offers, it's not surprising that businesses have been embracing the technology since its launch. The RTP network—introduced in 2017 by The Clearing House—now processes more than 80 million transactions each quarter and reaches more than 65% of demand deposit accounts in the US, according to the 2023 Association for Financial Professionals Real-Time Payments Survey Report.

On June 28, 2024, more than $1 billion was processed over the RTP network—a first for the new payment system. Looking forward, 77% of businesses expect to receive their business-to-business transactions with RTP by 2028 and 76% expect to send their payments with RTP during that year, according to the July 2024 Clearing House Real-Time Rundown Newsletter.

Payment activity has ramped up fast on the RTP network. The Clearing House reported that during the second quarter of 2020, RTP payments were at roughly 11 million transactions with a value of $10 billion, compared to the more than 80 million transactions and $55 billion value reported during the second quarter of 2024.

Improving collections through payment flexibility

Also in the webinar, Ribbens highlights how offering multiple payment options can expedite collections.

In the excerpt below, Ribbens discusses the importance of creating an integrated and seamless payment experience to improve customer satisfaction with panelist Jennifer Lucas, EY Americas payment consulting leader. They explain how businesses can leverage electronic bill payment and presentment solutions to streamline the receivables process.

Improving consumer and business collections video

Matt Ribbens: One of the things that is just really important to remember is if you're trying to expedite your collections, giving your customer more choices of how to pay you can be a really valuable tool.

So lockbox, as we mentioned, is one solution to be able to capture those check payments. Electronic bill payment and presentment is another area where if you can offer the ability to take both an ACH payment, so a pay-by-bank option, or even, again, looking at the preferences of using a card, whether it's a debit or credit card. Our merchant services team partners with the treasury services team, we've got an EBPP solution that allows you to create a website to be able to capture payments, to get paid faster, to give them an option to pay you other than check. And sometimes these are great to use in combination with one another because, again, giving your consumer more choice really does result in a better collections process.

Jennifer Lucas: This integrated experience is becoming more and more important.

And when you mentioned the website creation and that user experience to be able to be easy to do business with. This is the number one thing is, I need to be easy to do business with, whether I have a subscription-based service, which is a kind of a set it and forget it, or if I have an ad-hoc one off, you know, bill pay or one off, payment. I want to be easy to do business with. I want to have a good impression, and this is an opportunity for me to also cross sell. So, I really would encourage anyone that's looking at ways of integrating choices to think about a variety of these because it really does change the dynamic of just getting a receivable versus creating a unique experience.

Examining the risks of instant payments

As businesses ramp up with any new financial innovation, concerns regarding risk are inevitable. The good news is, the risks associated with receiving instant payments are minimal.

For payers, extra care is needed to ensure payee information is accurate prior to making instant payments because, like cash, the transactions are final. Also, financial institutions aren't responsible for resolving payment disputes, so any issues that arise must be addressed directly by payers and payees and can be done so through a robust set of ISO 20022 standard messaging options that are supported by the payment network.

The risks are negligible for payees, who get immediate access to funds, irrevocable transfers and confirmation for each payment. A potentially greater worry is the risk of not accepting instant payments at your business.

As the volume of instant payments increases, not accepting these payments may limit a business's ability to be paid by certain suppliers. Businesses that don't allow instant payments may also be perceived as not keeping up with the latest technology and innovations in the market.

Examples of instant payments in action

Here are a few scenarios that illustrate the advantages of receiving instant payments in a range of industries.

Aircraft parts supplier: Reducing critical order delivery times

A small aviation parts supplier requires payments on all invoices prior to shipping components to its aircraft builder clients. Receiving instant payments allows the parts supplier to receive funds immediately after sending requests for payment. Using this payment method allows the supplier to offer significantly shorter delivery times without burdening its cash flow.

The strategy also makes it more likely that the supplier will choose to do business with aircraft builders that regularly provide instant payments, compared to builders who rely on traditional 30-day payment cycles.

Vegetable farm: Enhancing the freshness of perishable goods

A well-known vegetable farm supplies daily deliveries of fresh produce to a select number of local restaurants. To fulfill its daily deliveries and maintain a healthy cash flow, the farm requires its restaurant clients to fund purchases with instant payments. These payments allow the farm to offer fresh, daily deliveries without impeding its cash flow.

Auto dealer: Streamlining the customer purchasing process

A regional auto dealership relies on instant payments to receive the personal proceeds from local banks that fund customer car purchases. The instant payment requirement allows the dealership to significantly reduce customer wait times for new car deliveries without impacting its cash management.

The bottom line

Given the impact instant payments can have on your business, they're worth considering. Potential improvements to cash flow, easier reconciliation and 24/7/365 service levels have helped make them increasingly popular among small to medium-sized businesses over the past few years. And the nominal transaction costs and automated setup make a strong case for adding instant payments to the way you do business.

Questions about RTP?

See if RTP is right for your business.

Learn more about RTP

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