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Consumers and businesses are embracing instant-payment options for such transactions as bill payment, mobile-wallet funding and defunding, account-to-account transfers, and immediate payroll for employees, the Federal Reserve says.
A pair of studies surveying businesses and consumers about instant payments and the payments landscape, released late Monday by the Fed, reveals that 86% of businesses and 74% of consumers used faster or instant payments in 2023. In addition, 74% of businesses and 79% of consumers reported looking to their financial institutions to provide instant-payment services.
The studies were conducted by Federal Reserve Financial Services, a collaboration of the 12 Federal Reserve Banks, which oversees management of payment services and is responsible for marketing instant or faster payment services, such as the FedNow network and FedACH. For the studies, the Fed surveyed 2,001 adults across a variety of age groups and 2,005 businesses of varying revenue sizes across multiple industries.
On the consumer side, paying friends and family (55%), transferring money between accounts (30%), and paying bills (27%) are the main use cases for instant payments, according to the study. Factors driving consumers to embrace instant payment options include convenience, ease of use, and immediacy, the study says.
When asked about the pain points with other payment options that make instant payments more attractive, 45% of consumers noted fees charged, 25% cited lack of speed, and 18% said processing errors.
Consumers, particularly younger ones, appear willing to pay fees where they perceive value, as with an instant payment, the study says. In addition, 25% of consumer respondents say they are challenged by the slow speed of payments and prefer to have better options like instant money movement to help manage personal finances.
Among businesses, 92% cited business-to-business payments as a key use case for instant payments, while 71% cited business-to-person and 40% cited account-to-account transactions as key use cases. Some 50% of businesses believe instant payments will be useful for digital-wallet funding, while 25% see instant payments as useful for earned wage access.
Another factor driving businesses to adopt instant payments is lower cost. Some 48% of businesses are using instant payments to reduce the cost of payments. Other factors fueling business adoption include greater flexibility in making the payment (39%) and the 24/7 nature of instant-payment services (35%).
Pain points with conventional services that are driving businesses to adopt instant payment methods include high costs (44%), slow or untimely payments (35%), and lack of payment process automation (30%).
“The growing demand for faster and instant payment services suggests that tools like the FedNow Service will continue to play a crucial role in helping financial institutions meet their customers’ needs,” Mark Gould, chief payments executive for Federal Reserve Financial Services says in a statement. More than 700 financial institutions have signed on so far to participate in FedNow since its launch last summer.
