Instant Payments: Benefits and Risks for Your Business

During the last 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 the funds. Funds may 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, such as PayPal®, Venmo®, Zelle®, Visa Direct and Mastercard Send®, which leverage existing payment platforms provided by the card networks or ACH. But RTP and FedNow are different because they offer these full functionalities of instant payments.

• 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 receiver's account within seconds
• Send payment confirmation to both 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, fraud prevention and reconciliation efforts and can even help you differentiate your business from competitors.

• Receive payments in seconds: Allows for more precision with your liquidity management
• Immediately access funds: Get 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

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.

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 need to 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 that 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 instant payments increasingly popular among small- to medium-sized businesses during the last few years. And the nominal transaction costs and automated setup make a strong case for adding instant payments to the way you do business.