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Whether it’s financial institutions or merchants, real time is no longer just a nice-to-have

For those of us in the digital-payments industry, it’s a good idea to remind ourselves from time to time that the case for real-time payments is not self-evident. Unlike virtue, instant is not its own reward.��

A useful way to understand the current state of real time is to look at what financial institutions and merchants are doing now with instant payments. Where do they see the value in real time? What’s been changing? What are the new and emerging use cases?

In this interview, edited for space and clarity, two ���������� leaders in the real-time payments space share their perspectives: Justin Jackson, senior vice president and head of Enterprise Payments, Digital Solutions; and Robert Clayton, vice president and head of money movement, Carat from ����������.��

How are financial institutions looking at real-time payments today compared to a year, two years, five years ago?

Justin Jackson: Since at least 2017, when RTP^® from The Clearing House was launched, many financial institutions thought that enabling their customers and members to receive payments – and only receive payments – was enough. More recently, there’s been a sea change in the market, where banks and credit unions are letting go of the “receive-only” mindset and evolving to “receive first.” 

Accepting transactions was, from the financial institution’s perspective, something they could do without taking on extra risk from potential fraud, misdirected payments and the like. There were also concerns about the operational impacts of supporting new forms of instant guaranteed credit-send transactions.��

Today, many banks and credit unions that were receive-only are much more open to the idea of adding send transactions. They’re starting to think about how to get into that side of real-time payments. This new way of thinking is having a domino effect on institutions that are just now getting into real-time. These newer entrants are saying, “I’m going to get in, I’m going to enable receive payments and in six months, a year or a year and a half, I’m going to start enabling the sending of payments.”

What’s driving this change to a receive-first instant payments mentality? 

Jackson: Banks and credit unions are making the connection between instant payments – send and receive – and accountholder satisfaction as well as the ability to grow the relationship with their accountholders.��

Just think about our expectations for getting goods and services nowadays. We expect (and get) movies, books and music instantly on our devices. We get physical goods remarkably quickly, even same day. That’s not always the case for us as consumers when it comes to receiving and sending funds.��

Instant-payments use cases have become very appealing to consumers. They’re pushing their financial institutions to offer new capabilities. They’re saying, “If I can receive my money in real time, why can’t I send it in real time, too?” They want to be able to move money instantly, pay someone instantly, receive a payment instantly and have the guaranteed credit – knowing it’s not going to be clawed back because of insufficient funds.

What about merchants and other corporates? In the context of real-time payments, who are they and why is instant important to them and their customers? 

Robert Clayton: Speaking broadly, the merchants and other corporates served by ���������� have traditionally been the originators, or senders, in the instant-payments universe. “Digital payouts” is the term we’ve used to describe almost any kind of business-to-consumer movement of funds. That includes business-to-small-business, too.

In some cases, the ability to disburse funds digitally – and in real time – is an absolute imperative. Think about government agencies that disburse relief payments following a disaster of some kind. People who’ve been displaced after a catastrophe might not be able to receive a paper check in the mail. Real-time post-disaster relief payments enable these people to get their money right away, when they need it most.

Insurance claims are similar. The policyholder’s primary residence might be uninhabitable, but they still need funds to pay contractors and for temporary lodging. Or if they’ve lost their primary vehicle, they need funds for rental coverage so they can continue to get to work.��

One of our clients, a major nationwide insurer, to rapidly move traditional paper check payouts to instant payouts to debit cards. The insurer launched a Digital Pay portal that has helped some of their customers submit claims, have them approved and then receive funds in just a matter of minutes. The insurer has also enabled through Digital Pay enabled by Carat from ����������.��

Then there are alternate payroll scenarios – like earned wage access and early wage access – where people are taking earned wages in advance of their actual payroll. This can often mean the difference between a utility payment being made or not; and subsequently the continuation of essential services like power and water.

In terms of real-time payments, where do merchants and other corporates stand today, and where are they headed?

Clayton: It’s interesting to think about this in light of Justin’s point about financial institutions going from receive only to receive first. Merchants have typically been send only – that is, merchants are the originators, or senders, disbursing payouts into those receive scenarios that financial institutions offer their accountholders. But just as banks and credit unions are changing, corporates are evolving from send only to send and receive.��

The growth of the RTP network and, in 2023, the launch of the FedNow^® Service have enabled – for the first time – new use cases for truly real-time consumer-to-merchant send capabilities.��

A key example here is instant transfer of funds from a demand deposit account into that accountholder’s external brokerage account. Until recently, that accountholder would have had to use a debit card, with its low transfer limits, to make an investment, or else wait on an ACH transfer. The appeal of the new instant method is obvious: Accountholders can keep the money working for them in their DDA and then, at the precise moment they’re ready to make an investment, make that transfer. Funds no longer have to sit in a low- or no-interest brokerage cash account, just waiting to be invested.��

Our pay-by-bank solutions have long provided merchants with a low-cost form of acceptance over DDA rails. The timing of ACH transfer was the primary risk there, in that the payment could be clawed back for a number of reasons, including insufficient funds. Instant transfer of funds to a merchant’s settlement account basically negates that risk while maintaining a low-cost form of payments acceptance. The real-time payment acceptance proof-of-concept capability is an exciting example of this. [Editor's note: See the sidebar above, "A breakthrough in real-time payment acceptance," for more information.]

The term “merchants and other corporates” doesn’t do justice to the full range of organizations that can derive business value from enhanced digital disbursements. Who are these new entities?

Clayton: The spectrum of businesses that can benefit from real time is so broad, and it seems like it’s growing all the time. Gaming companies are an example of this new breed of “merchant and other corporates.” Money-remittance companies that enable instant funds transfers domestically and, more and more, around the world is another. Marketplace platforms, which function as payment facilitators for the merchants selling on those platforms, are another great example.��

As to the value proposition that these businesses make to their customers, it starts with customer satisfaction and retention. If you operate a marketplace full of sellers, you’re competing with other marketplaces to get those sellers on your platform. The speed with which those sellers can get paid is a competitive advantage. The same goes for the gaming platform that offers instant disbursement of winnings.��

And it’s not just the newer kinds of entities that we’re talking about. People are going to prefer an insurance company that can provide them an instant payout for claims to one without that offering. People are going to prefer working for an employer that can provide them access to payroll instantly to those that don’t.

Robert just talked about the new possibilities that real-time payments are opening up for merchants and other corporates. What are you hearing from financial institutions that are now active?

Jackson: As a general rule, they’re very happy to have signed up. We have hundreds of clients live on FedNow and RTP. We have 1,500 clients live on the NOW^® Network for ���������� services like Zelle^® and TransferNow^®. No one has asked us to turn instant payments off.��

In the spring of 2024, we were on a call with a client we had just taken live on FedNow through the NOW Network. The moment this credit union signed in, their first payment arrived. One of their members received a $1,500 payment from an originator sitting on the FedNow payment rail. We could hear the excitement in the client team’s voices at seeing an immediate deposit go right into their member’s account. That’s the general attitude. Financial institutions see the volumes growing. They see their customers and members using the services, and they’re excited to be connected to an instant world. There are still questions about the most common use-cases, about distribution of payments among networks, but generally — excitement.

How are merchants and other corporates taking to an expanded use of instant payments? 

Clayton: I would say it’s rapidly moved from buzzworthy and exciting to practically being table stakes. Much like Justin said, any client that has gotten in has never come back to us and tried to get out. It’s definitely taken, and taken well.

It’s really fun and exciting for us to see companies from more traditional industries, like insurance, that have always printed and mailed checks, make the move to digital. It takes a lot of support to enable them to run an instant-payments program independently in their legacy ecosystems, but it’s just transformative for them, and it’s worth all the effort that they and we put in.��

It's a different story for digital-first merchants, like those in the gig and content-creator economies. They’ve never printed and mailed a check in their entire existence, so this is really a given for them.��

I think it’s important to add here that real-time is also making it possible for new kinds of real-time mindsets to emerge. Real-time decisioning is what I’m talking about.��

Let’s go back to the gaming example I mentioned earlier. Real-time disbursements to gamers is an obvious value proposition for gaming companies. By offering real-time receive capabilities, however, gaming companies can make it possible for bettors to place wagers during a sports event, as the odds change. A gamer used to have to be physically present in a casino sports book to place a wager mid-game. By empowering real-time decisioning on the gamer’s part, the company improves the gamer’s experience while also raising its revenue potential.

Let’s close on the point we started with: financial institutions looking to add send use cases to their receive ones. How is ���������� meeting their new and emerging send use-case needs? 

Jackson: We began offering send use cases in 2014, when we launched the NOW Network and turned on send and receive instant peer-to-peer payments with Zelle^® and the now-discontinued Popmoney. We’ve added new capabilities over time, and today we can send and receive instant payments all over the place. That said, we prioritize our investments in those capabilities based on market demand. In 2025, we’ll expand our TransferNow: Instant Transfers capabilities to pull in RTP and FedNow endpoints, expanding the footprint of where TransferNow users can move money instantly.

Let’s talk about a use case we have seen demand for, but where the market isn’t quite ready: real-time bill payment. Billers have largely not been in a position to receive instant payment transactions. They can’t post it instantly, so the value to the payer of that bill isn’t there. That’s changing now.��

With CashFlow Central^SM, we’re developing an instant good-funds capability that funds transactions immediately. We’re also enabling CashFlow Central businesses to receive payments electronically, in many cases instantly. We’re doing this to drive down the volume of paper checks that small businesses have to send and receive. It will improve their ability to deliver payments electronically while taking more risk out of processing these transactions.

So, we’re seeing demand for send use cases developing now, and we’re investing in and enabling many of them.