We’ve recently released a research report Understanding Instant Payments Solution Providers co-authored with The Clearing House, operator of core payments infrastructure in the US, including the RTP network. Here, we talk to Scott Harkey, our Chief Strategy Officer, about the wider business impact of instant payments in the US, beyond the movement of money.
What are the opportunities in instant payments?
Both large corporates and small businesses have a lot to gain. Both can benefit from the increased productivity and overall satisfaction that real-time payments brings. Still, the complexity of adoption, especially for institutions, is slowing things down, which is why we created the report, to give clarity and help businesses identify which entities they should work with to solve specific problems.
Can you expand on some of the challenges businesses face with payment processes, especially in business-to-business (B2B) transactions.
Sure. Even today, many businesses still rely on offline processes like checks and ACH payments. There's often a disconnect between the steps in a payment process. For instance, a business might send an invoice, but when that invoice gets paid, it could be via check, and they have no idea when it will arrive. The same goes for ACH—once it's triggered, you know the money will show up in a day or two, but the exact timing can be unclear.
Isn't that uncertainty something businesses have come to use to their advantage?
Well, some argue that small businesses don’t necessarily want real-time payments because they’ve grown used to managing cash flow through these delays. But my response is that they can still manage their cash flow the same way—they can wait until day 89, for example, to pay an invoice. The difference is, with real-time payments, they can schedule it in advance and have certainty that it will be delivered on that exact day and time, rather than being stuck in a window of uncertainty.
So, it’s really about adding transparency and certainty into the process?
Absolutely. The first step is in adding certainty and transparency to the real-time status of cash flow, small businesses can operate much more effectively. They won't be waiting for a check to clear or wondering when an ACH will be processed.
Step 2 is making decisions based on that visibility. Once a business knows its cash flow status in real-time, they can decide to pay one invoice on the due date to avoid penalties, or maybe pay another invoice early to get a discount. Once you have that clarity, you can start optimizing your payments and making more strategic decisions.
Step 3 is where businesses can start to monetize this visibility. For example, if a business knows that by paying a supplier three days earlier, they can unlock an early payment bonus, they might encourage their suppliers to pay them earlier as well. It’s all about managing the flow of money in and out, which is critical for small businesses that are constantly juggling cash flow.
And clearly there’s value well beyond small businesses?
Definitely. This isn't just advantageous for small businesses. Larger corporations and their treasury departments, are already adopting these kinds of processes. It makes their financial operations more efficient by giving them transparency into their cash flow. They can move large payments into high-yield accounts for a few days to earn interest before sending the money out, for example.
Corporate treasury departments are further ahead on this because they’ve already realized the value of this transparency. They’ve started embedding these strategies to optimize their cash management. Small businesses, on the other hand, don’t have the same level of sophistication or resources, which is why they often miss out on these opportunities.
It sounds like small businesses could really benefit from this shift, but what’s holding them back?
Small businesses often aren’t financially savvy. They’re focused on growing their customer base, not on sitting in front of a computer figuring out when to pay bills to optimize cash flow. For them, real-time payments could make a huge difference because it simplifies these decisions, but they’re not always equipped to do this on their own. If they had better tools or guidance, they could make more strategic decisions without needing to be financial experts.
Scott, from a practical standpoint, how difficult would it be for these businesses to implement these strategies?
It’s not difficult if they have the right tools. The key is making these treasury management techniques more accessible to small businesses. With real-time payments, a lot of this capability can be built into the system for them. It’s about simplifying the process and giving them the same tools that large corporations use to optimize their cash flow. This is where the banks can step in and add additional value to these real-time products.
It seems like there are still some foundational elements missing in terms of making real-time transactions happen?
Yes, a big part of that is the surrounding systems that haven't been fully built out yet. For these transactions to be truly effective, the fact that they’re real-time is key. But what we also need is greater automation—automation that could come if we had more clarity about the messages and the steps involved in finalizing them.
Think about the banks. They’d need to build out capabilities within their existing systems, then the accounting systems like QuickBooks or even larger ERP systems like Oracle also need to build on top of that. But it’s not just one entity that needs to get on board, it’s an entire ecosystem. Without that ecosystem, some use cases become difficult to implement.
So it’s about more than just individual organizations embracing real-time payments?
Exactly. Every entity within a workflow needs to be aligned. If one party isn’t able to handle real-time payments, then the workflow breaks down. Today, organizations don't always know which banks are using RTP (Real-Time Payments) or FedNow without sending a request to those networks. That uncertainty creates barriers because businesses aren’t able to confidently design products or workflows around it.
Then companies hesitate to make large investments if they’re unsure about coverage. If a workflow depends on real-time payments but the receiver can’t process real-time payments, then for some customers, it still has to be done manually. That kind of ambiguity discourages businesses from fully committing.
How do you see this challenge evolving? Will the market mature enough to fix these issues?
Over time, yes, I think it will solve itself. Once the market reaches maturity and more entities are universally on board, then we’ll see real-time payments adopted more widely and volumes increase. But regardless it’s coming, especially when the benefits are experienced and it will eventually gain ubiquity.
If you’d like to better understand your options when deciding on an instant payments solution provider, you can download this insightful report Understanding Instant Payments Solution Providers.