Banking-as-a-Service 2.0 Helps Senders Monetize Instant Payments Ecosystems

In today’s world convenience is king, even when it comes to managing finances. More and more, consumers are demanding swift (if not instant), hassle-free solutions. That’s where instant account funding comes in. Instant account funding refers to a feature offered by a number of financial institutions, designed to meet this need for speed head-on. But what exactly is instant account funding, and what are its key features? Defining Instant Account Funding An instant account funding solution refers to the capability of swiftly depositing funds into an account, typically within seconds or minutes, using various electronic methods. This feature eliminates the traditional delays associated with bank transfers or check deposits, providing users with immediate access to their funds. Whether it’s topping up a savings account, funding an investment portfolio, or making urgent payments, instant account funding streamlines the process with unparalleled efficiency and ease for financial institutions and their customers alike. Key Features of Instant Account Funding What defines instant account funding? And what features make it so appealing to FinTechs, financial institutions, neobanks and their clients? Key features of instant account funding include: Real-Time Transfers: Instant account funding enables real-time transfers, allowing funds to be deposited into an account in seconds via debit and prepaid cards and ACH transfers. This is particularly beneficial for time-sensitive transactions or emergencies, providing users with immediate liquidity. Multiple Funding Sources: Financial institutions often offer multiple funding sources for instant account funding, including bank transfers, debit cards, credit cards, and electronic payment services. This flexibility allows users to choose the most convenient method based on their preferences and circumstances. Enhanced Accessibility: Financial institutions use instant account funding to enhance accessibility for their customers. Whether individuals are managing personal finances or businesses are handling transactions, the ability to deposit funds instantly caters to a wide range of needs and scenarios, from paychecks in the gig economy to healthcare reimbursements. Seamless Integration with Visibility: Instant account funding seamlessly integrates into digital banking platforms and mobile applications, providing users with a user-friendly experience. With just a few clicks or taps, individuals can initiate transfers and see funds reflected in their accounts immediately. Why Instant Account Funding Matters Instant account funding is a game-changer for financial services companies—offering unparalleled speed, convenience, and accessibility. As technology continues to evolve, this feature will undoubtedly become a cornerstone of modern banking, empowering users to manage their finances with greater ease and efficiency. With the growing demand for instant gratification in banking and seamless financial transactions, instant account funding is poised to reshape the way individuals and businesses interact with their finances, providing a smoother, more efficient banking experience for all.

Nonrecurring or ad hoc payments remain a significant part of the monthly revenues of small to mid-sized businesses (SMBs). One way that SMBs streamline the accounts receivable (AR) process is with the help of instant payment methods. Instant payments, which provide quick access to the funds essential to running businesses, are especially helpful to the smallest or micro SMBs relying primarily on ad hoc receipts. The cost of receiving these payments instantly remains a deterrent to businesses that could benefit from them the most. These payments account for most SMBs’ AR volumes, but SMBs choose instant for 39% of all ad hoc payments received. The smallest SMBs — those annually generating less than $100,000 in revenue — have decreased instant payment use since September 2023. This is most likely due to cost. Small SMBs that use instant methods report that they pay the highest fees. These are some of the findings detailed in “How Instant Ad Hoc Payment Costs Impact Small SMBs,” a PYMNTS Intelligence and Ingo Payments collaboration. This report is based on a survey of 405 SMB receivers generating less than $25 million in annual revenue across the United States conducted between Dec. 29, 2023, and Jan. 18, 2024. The report examines SMBs’ reliance on ad hoc payments, the challenges they face when processing AR and how instant payment methods can help SMBs manage their cash flows and set them up for success.Other findings from the report include: The instant methods SMBs prefer vary based on revenue and the type of ad hoc payment. The primary instant method for most payments of this type is instantly to bank accounts via a debit card. However, SMBs generating less than $100,000 in annual revenue receive 57% of their instant ad hoc payments through Zelle, an indication that their AR processes are less capable of receiving via push-to-card and other instant options. The report explores trends in SMBs using Zelle, push-to-card payments, the RTP® network and other instant methods. The smallest SMBs pay 51% more to receive ad hoc payments instantly than other methods. The cost of instant methods for these payments remains higher than most options for SMBs, even though costs have begun to come down. The smallest SMBs pay $11.70 per instant transaction, disproportionately more than the average of $7.90 per transaction among all payment types. One explanation is that many SMBs, particularly the smallest ones, rely on manual means to process ad hoc payments. The report delves into how manual AR processes and the costs of instant can increase poor payment timing, which 1 in 4 SMBs cite as their biggest challenge. SMB size and industry impact if vendors pay a fee. Receiving instant ad hoc payments at no cost is an attractive option for SMBs. However, just 19% of SMBs report receiving these payments via instant methods for free, down from 29% in September 2023. This may help explain why the smallest SMBs reported receiving fewer of these payments via instant methods than in September. Nonetheless, more than half of SMBs are willing to pay a fee to receive instant payments. The report details which SMBs find fixed fees appealing and which prefer percentage fees. The cost of receiving instant ad hoc payments remains a challenge for the smallest SMBs. Reducing instant payment costs by improving AR systems is one key to boosting instant use among these SMBs. Senders who can offer the right fee structure may have a competitive advantage. Download the report to learn more about trends in SMBs’ use of instant methods to receive ad hoc payments.

The world of business-to-consumer (B2C) disbursements is changing. And it’s changing fast. The latest trend transforming the way people get paid is digital payments. With global digital payments revenue projected to reach $14.79 trillion by 2027, it will pay to be ahead of the trends. In fact, nearly two-thirds of adults worldwide are using digital payments. That number jumps to an impressive 89% in the United States.   Consumers aren’t the only ones trending digital, either. More and more treasury departments are embracing social tokens, real-time payments, virtual cards, and other digital innovations. These payment methods have some significant advantages over traditional payment methods. Namely, they are fast, secure, convenient, and more cost-effective than traditional payment methods.   The world isn’t getting less competitive. Companies need to pay attention to any opportunity to streamline their operations. Digital disbursements already play a pivotal and strategic role in various industries like insurance, lending, and e-commerce. Modern consumers and businesses also want frictionless experiences. Even better if those experiences come with a smaller price tag. Digital disbursements can play a pivotal role for property managers by providing fast, efficient, and convenient methods to pay vendors. If your company is still only using traditional disbursement methods like physical checks, wire transfers, or automated clearing houses (ACH), then you’re missing out on a big opportunity.  The Old Ways: The Limitations of Traditional Payment Methods  While the world is trending digital, old payment methods are still successfully serving many companies across varied industries. Vendors sometimes even prefer some of these methods over newer ones. Physical checks, wire transfers and ACH payments aren’t going anywhere for the foreseeable future. They do come with some downsides and limitations, though.   The first is cost. Some of these methods simply are not suitable for high-velocity, low-volume payouts. For instance, paying $50 for a low-volume wire transfer does not make much sense. Additionally, solutions like ACH payment cannot always be used internationally. This is a huge limitation for companies that have global customers. These are just a couple of ways traditional payments can create a poor experience and be cost-prohibitive. There are also significant parts of the economy that rely on regular, high-velocity, low-volume payments that require a payout mechanism that is more flexible than traditional methods.  The New Way: Instant Digital Disbursements  Consumers and vendors expect the world to move at digital speeds. That means fast if not instant. And they are willing to pay for it. 33% of consumers have said they would pay additional fees for instant payouts. Perhaps even more interesting, 38% of consumers want the ease of digital so much they would be willing to trade personal information for it. Getting consumers their money faster also encourages more brand loyalty. 67% of consumers said they would be encouraged to keep doing business with companies that offered instant payments. Consumers and vendors aren’t the only winners. Faster payouts mean increased operating efficiency. Issuing checks and managing disbursements takes time. And time is money. In fact, Bank of America estimates that the cost of writing a paper check varies between $4 to $20. That might not sound like a lot until you start scaling the number. Even ACH and wire transfers take time and resources to complete.  There are a few different types of instant digital disbursement methods being utilized today. Each has its own advantages and use cases.   PUSH-TO-CARD This type of payment transfers funds directly to a recipient’s debit or prepaid credit card, in contrast to pull payments, where the recipient or merchant initiates the payment process. There are several advantages to push-to-card disbursements. They are typically fast and often completed in minutes or hours. Because there is no need to provide bank account details or go through a lengthy setup process, they are also convenient for the recipient.   Push-to-card leverages existing security infrastructures, so it is also an incredibly safe and secure process. Because of this, there are several use cases for push-to-card disbursements. Refunds are a popular way to utilize push-to-card. If a customer returns a product, the business can push the refund amount directly and instantly to the customer’s card. With the rise of the gig economy, property managers are using freelancers and contractors at increasing rates. Push-to-card can make it easier for companies to send payments to their gig workers and service providers. It also makes it easier for financial institutions to disburse loan amounts directly to a borrower’s card.  REAL-TIME PAYMENTS: Real-time payments (RTP) is a payment processing network used to send money electronically between banks in the United States. The network was launched in 2017 and is managed by The Clearing House, a membership organization owned by all the major US banks.   Payments using RTP occur instantly, 24 hours a day, 7 days a week, which is a big advantage. They also allow more data to be attached to each payment. This can be useful for gaining visibility into invoices, dates, purchase orders, and other data that can help companies respond to customer needs. RTP also helps mitigate the risk of failed payments. With RTP, payments are irrevocable, and payment instructions are not sent unless there are sufficient funds.  FEDNOW: FedNow is an instant payment service similar to RTP developed by the US Federal Reserve. It allows businesses and individuals to send and receive payments instantly and in real time. Launched on July 20, 2023, it is still relatively new but does have some baseline features.   In its first release, FedNow allows customers to instantly transfer funds between accounts at different financial institutions. Businesses will also be able to consolidate funds into a single account for payroll or other purposes and consumers can reload prepaid cards or fund mobile wallets. It also has a bill pay functionality that enables customers to immediately send and receive bill payments that include remittance details. Property managers and residents can also use it for loan payments, utility bills, and invoices for services.  Digital Disbursements for the Gig Economy  Freelance and contract work is here to stay. In fact, it’s on the rise. Recent estimates show the freelance workforce growing to 90+ million by 2028. Traditionally, payment methods like cash or paper checks were used to pay gig workers. These payments can be unreliable. Digital payments have become a popular alternative because they are faster, more efficient, more transparent, and more secure.   Faster Payments: Gig workers are not like typical vendors. A typical vendor can accommodate 30 terms. A gig worker, however, wants their money as soon as services are rendered. Digital disbursements offer a quicker way for gig workers to access their earnings compared to traditional methods like cash or paper checks. This is crucial if you want to retain the best freelancers and contractors.   Increased Efficiency and Cost Savings: Digital payments eliminate the need for expensive, time-consuming administrative tasks associated with traditional payment methods like cash and check. They can also be automated which allows business owners to focus on more important parts of their business.   Improved Recordkeeping and Transparency: Accurate record keeping, and transparency are crucial for financial and tax reporting. Digital disbursements make it easier to reconcile accounts and report finances. This reduces the risk of errors and fraud.   Enhanced Security: Digital payments offer protection from fraud and unauthorized access. Most digital payment systems use encryption technology to secure transactions. Many platforms offer fraud detection and prevention tools.  Choosing the Right Platform   Selecting the right digital disbursement platform provider is crucial to ensure seamless, efficient, and secure financial transactions. There are four criteria companies should evaluate when choosing the right provider.   NETWORK REACH: Companies must identify payment providers that give them the furthest reach possible into the billions of available consumer accounts across credit and debit cards, online wallets and bank accounts. Payment providers frame their network reach in terms of gateways or endpoints. Look for those that span networks in order to provide the payment choices customers have come to expect.   COMPLIANCE: Even simple errors in how a company sets up its accounts or whether they hold money on its books can run afoul of things like money transmission or information security regulations and standards. Look for a provider that can help assess current compliance flows, create custom options based on a specific industry, and be available for ongoing support needs if they arise.   PARTNER SUPPORT: Companies need a partner that will immediately troubleshoot in real time to obtain proof of payment, identify why it was unsuccessful (if it did not post), and then resolve the problem to the satisfaction of both the client and the end customer. Look for providers that offer multi-channel support options and that are available and responsive.   RISK: The key to choosing a payments partner is to identify a platform with a long track record of trust, scale, and success with significant enterprises and banks. Many providers are developer-first or developer-only shops that can make the tech or connectivity look easy but are often unprepared to help control the risk of moving billions of dollars. Digital disbursements and instant digital disbursements in demand are here to stay. And for good reason. They are fast, convenient, and secure. Even better, they create a better customer experience and improve operating efficiencies. But before you dive into digital payments, you need to find the right payments partner.