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US Banks Are ‘Conflicted With Worries’ as Demand for Instant Payments Grows; Reveals RedCompass Labs

Across much of the world, instant payments have quickly become the norm. However, the same cannot be said in the US. In fact, less than a third of US banks are signed up to either RTP or FedNow, meaning the vast majority cannot offer instant payments as a service; new research from RedCompass Labs, the payments modernisation company, has revealed.

The latest RedCompass Labs report, ‘Time to leave legacy behind? Instant payments in the US‘, surveyed 300 senior payment professionals in US banks to get a better picture of the demand for instant payments, the barriers to implementation, the challenges banks face, and other important payment trends.

The research has revealed that, while two-thirds of banks aren’t signed up to RTP or FedNow, 63 per cent of US corporate bankers experience significant or overwhelming demand for instant payments from their corporate customers.

Fifty-three per cent of all bankers said they feel either significant or overwhelming demand or adoption from both corporate and retail clients, while 99 per cent feel at least some level of demand or adoption from both sides.

The existence of Zelle, Venmo, Cash App, PayPal and other wallet services has dampened US Banks’ appetite for implementing instant payments, with 50 per cent feeling a lot or significant impact.

Nearly all (98 per cent) experienced some form of impact. Given these apps have a huge market share and offer near-instant payments already, many banks see Zelle as a ‘good enough’ instant payment solution.

Are legacy systems stopping banks from evolving?

Legacy systems also remain a big barrier to adoption. Thirty-four per cent of US banks are concerned about updating their core infrastructure to handle the increased volume and speed of transactions. Other challenges include 24/7 availability (34 per cent), cannibalising other revenue streams (32 per cent), and choosing between RTP and FedNow (31 per cent).

Tom Hewson, CEO at RedCompass Labs, US instant payments
Tom Hewson, CEO at RedCompass Labs

Tom Hewson, CEO at RedCompass Labs, comments: “The US is taking sizable steps forward in instant payments. Adoption is growing steadily but has been slow compared to the rest of the world. Legacy systems are ill-equipped for 24/7 availability, banks are conflicted with worries of lost card revenues and how they will manage, partner and compete with fintechs, never mind the choice between RTP and FedNow. It’s given banks plenty of reasons not to modernise.

“Many banks see Zelle as doing a good enough job, but Zelle only solves part of the instant payment puzzle. Corporate use cases – the biggest opportunity for US banks – are being left on the table opening the door to first moves and fintechs to grab market share.”

Appetite clearly exists for instant payments among corporate and retail customers alike, and signs suggest that US banks have already recognised the financial benefits of switching to instant payments. Overall, a huge 98 per cent of US banks surveyed plan on monetising their real-time payments service and 87 per cent of respondents plan on passing costs to their corporate clients.

‘The US cannot afford to be a laggard in payments’

Interoperability also emerged as a priority, as 89 per cent of US banks are considering real-time payment interoperability across schemes, cross-border and other real-time payment options such as pay-to-card, wallets and cards.

Hewson also added: “There is no going back. To compete globally, the US economy needs to adopt instant payments to accrue all the benefits of cash flow and reduced working capital for workers and businesses. Instant payments reduce company failures, and late payments.

“From keeping the lights on for gig workers, to insurance payouts, from treasury to making payroll. It is simple: to maintain the position of the world’s largest, most dynamic economy, the US cannot afford to be a laggard in payments.

“In India, Brazil, Asia and Europe, businesses and workers all have access to faster more flexible ways to move money. Banks that lead instant payments and overlay services will gather greater market share as US companies apply these tools to productivity and growth.”

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