US Banks Struggle to Meet Demand for Instant Payments, RedCompass Labs Report Finds

RedCompass Labs’ research highlights the challenges US banks face in meeting the rising demand for instant payments, emphasizing the need for modernization and innovation in the financial sector.

Recent research conducted by RedCompass Labs, a renowned leader in payments modernization, sheds light on the challenges facing US banks as they strive to meet the increasing demand for instant payments.

The comprehensive report, titled “Time to Leave Legacy Behind? Instant Payments in the US,” surveyed 300 senior payment professionals in US banks to gain insights into the demand for instant payments, the obstacles to implementation, the challenges encountered by banks, and other significant payment trends.

Key findings from the research indicate that a significant majority of US corporate bankers (63%) report experiencing significant or overwhelming demand for instant payments from their corporate customers. However, only a fraction of US banks—less than one-third—are currently enrolled in real-time payments (RTP) and the Federal Reserve’s FedNow service, limiting their ability to offer instant payments.

Moreover, over half (53%) of surveyed bankers acknowledge significant or overwhelming demand or adoption from both corporate and retail clients, with nearly all (99%) acknowledging some level of demand or adoption from both sides.

The proliferation of popular wallet services like Zelle, Venmo, Cash App, and PayPal has dampened US banks’ enthusiasm for implementing instant payments, with half (50%) of respondents reporting a significant impact. Legacy systems pose another major barrier to adoption, with concerns about updating core infrastructure, ensuring 24/7 availability, cannibalizing other revenue streams, and selecting between RTP and FedNow.

Key highlights from the research include:

  • Benefits of Instant Payments to Corporates: Top benefits cited include payment certainty (53%), improved customer experience (48%), and working capital optimization (47%).
  • Financial and Operational Incentives: Nearly all US banks surveyed (98%) plan to monetize their real-time payments service, with 87% intending to pass costs to their corporate clients.
  • Interoperability Priority: Ninety percent (89%) of US banks are contemplating real-time payment interoperability across schemes and other options such as pay-to-card, wallets, and cards.
  • Awareness of ISO 20022: Awareness of the ISO 20022 standard has grown significantly, with 91% of US banks now aware of it, up from 28% in 2017.

Tom Hewson, CEO at RedCompass Labs, emphasizes the urgency for US banks to embrace instant payments to remain competitive globally. While adoption has been gradual, legacy systems and concerns about revenue loss have slowed progress. Hewson underscores the importance of addressing corporate use cases, highlighting the potential for market share growth for banks that lead in instant payments and overlay services.

In conclusion, Hewson asserts that instant payments are crucial for maintaining the US economy’s dynamism and competitiveness on the global stage. As other regions embrace faster and more flexible payment solutions, US banks must not lag behind but seize the opportunity for enhanced productivity and growth.