Faster Payments Simplified

Faster payments are more than just speed. They represent a fundamental shift in money movement that is crucial for both businesses and consumers to consider.  Faster payments bring strategic opportunities for businesses to gain a competitive edge and provide consumers with more convenient and efficient financial experiences.

I enjoyed breaking down the faster payments landscape at the NEAA last week; here’s a breakdown of our panel discussion:

A faster payment rail rundown

• Same-Day ACH: Think of ACH as the reliable workhorse; it's affordable, reaches all banks, but operates in batches during business hours only. Same-day ACH offers speedier options, but with limitations on amounts.
• RTP®: Or Real-Time Payments network, offers instant money transfers in the US, 24/7. Launched in 2017, RTP is managed by The Clearing House.  
• FedNow®: Launched by the Federal Reserve in 2023, FedNow® is an instant payment network in the US that allows for 24/7 money transfers. It focuses specifically on providing financial institutions with advanced tools to manage their cashflow during these transactions. FedNow® has a slightly lower transaction cap than RTP®.

Who's using faster payments now?

The ACH network still dominates the electronic payments landscape handling 31.5 billion payments valued at $80.1 trillion in 2023. RTP® boasts a 65% reach of deposit accounts across roughly 300 financial institutions. FedNow®, with over 500 participating banks, is catching up.

Real-world applications

Faster payments aren't just a technological leap. These payment rails unlock new possibilities. Some common use cases today include:

• Instant payouts: From insurance claims to gig worker earnings, faster payments deliver funds when they're needed most.
• Rapid refunds: No more waiting weeks for a return. Faster payments can put the money back in your pocket instantly, fostering customer satisfaction.
• Seamless merchant settlements: Say goodbye to waiting days for your sales to clear. Faster payments allow businesses to access funds quicker, improving cash flow.

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The future of faster payments

The ideal scenario is a single, unified network, but for now, co-existence is the game. Network interoperability is a big step in that direction, allowing for seamless routing between these networks.

The "credit push" advantage

Think of traditional payments as a "pull" system: you initiate the transfer, and it takes time to reach the recipient. Faster payments are a "push" system: funds are instantly credited to the receiver's account, creating a guaranteed and irrevocable transaction.

Request for Payment (RFP)

This feature allows businesses to request funds electronically, but adoption has been slow due to cumbersome user experiences. However, with further development, RFP has potential to improve bill payments and other transactions.

Building a faster payments business

For merchants and service providers, faster payments offer golden opportunities, including:

• Enhanced customer experience: faster payments enable instant refunds and real-time settlement.  
• Improved cash flow: a faster ability to access funds from sales can improve financial health.
• T+0 settlement: refers to the immediate transfer of funds between parties on the same business day a trade is executed. So, forget waiting days for settlement as faster payments will be able to provide businesses with immediate access to funds.

The bottom line

The world of payments is undergoing a seismic shift. Gone are the days of waiting for a check to clear or ACH transfers to crawl through the system. Faster payments are here, offering a dazzling array of options, each with its own strengths and opportunities.

Want to learn how Cross River empowers businesses with faster payment solutions? Visit our docs  portal.