Sunday , December 10, 2023

Consumers Are Wary of Fraud, But Faster Payments Retains Its Allure for Multiple Applications

With some fast and near-instant payments services and apps already available, and more coming, it turns out fear of fraud, reluctance to manage multiple apps, and ignorance about the services are consumers’ biggest hurdles to adoption.

Approximately 40% of U.S. consumers are wary of using faster-payments options overall, according to survey results issued Monday by the Federal Reserve Banks. The results come as the Fed is preparing to launch FedNow, a real-time payments network, next year. Competing services are already available from The Clearing House Payments Co. LLC and from Early Warning Services LLC’s Zelle peer-to-peer payments app, along with a number of private-sector apps. 

Meanwhile, the automated clearing house network has offered same-day clearing since 2016. With an increase in March in the transaction dollar limit to $1 million, the service has already seen fast growth. Dollar volume on the ACH for transactions settled on the same day grew 53% in March compared to February.

Some 2,015 U.S. adults were questioned for the Fed survey, which was conducted during the second half of last year.

The consumers who indicated what the Fed calls “limited or no interest” in faster-payments services cited a number of reasons, but fraud concerns loomed large, with 49% of this group citing it. The concern is also even shared across age groups, with those 55 and over citing it but at least 44% of younger cohorts doing likewise. 

This concern, however, also indicates a marketing opportunity. “Faster payment services that ensure users will not be responsible for fraudulent transactions may be able to attract some of these consumers,” the study, which allowed multiple responses, says.

Tying in to the fraud concern, some 38% said they don’t want to “share account info,” while one-third simply indicated they didn’t “know enough” about faster payments.

The second-highest cause of reluctance arises from a proliferation of apps. Some 46% said they’re wary of having to manage or learn yet another service. “Everyone uses something different, so I’m constantly signing up for new things and getting new apps and new e-mails. It drives me crazy,” said one respondent, as quoted by the study. 

The study results, however, suggest a solution to this issue. “To the extent financial institutions incorporate faster-payment capabilities into mobile apps these consumers are already using, it is possible [customers] could become more willing to use faster payments,” the study says.

The good news for financial institutions and non-bank providers of faster-payment apps is that consumers are interested in a wide array of purposes, according to the study. Nearly one-third cited last-minute bill payments, while fully 53% were attracted by the ability to send money quickly to friends and family. With the rise of online shopping during the pandemic, 30% cited e-commerce as a use case they’re interested in.

“These findings suggest that providing consumers with safe, efficient instant-payment methods for business transactions needs to be a key industry priority,” said Connie Theien, senior vice president and head of industry relations for the Federal Reserve System, in a statement.

The strongest application, judging by consumer interest, remains peer-to-peer payments. Interest here is strongest in the 18-34 age cohort with 68% citing the application. But this is followed closely by the 35-54 group, 59% of whom expressed interest.

“In addition to the growing demand for faster payments to businesses, the survey shows P2P continues to be one of the strongest use cases for instant payments, which validates our direction for the FedNow Service,” said Nick Stanescu, FedNow service business executive, in a statement.

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