Instant Payments & the New World ofFinance – What Does This Mean for FIs and SMBs?

In July, we celebrated one year of the Federal Reserve’s FedNow Service. This launch marked a significant turning point for payments in the United States, allowing many consumers and businesses across the country to send and receive funds from their accounts in real time, 24/7/365.

Faster payments are forecasted to reach $376 billion by 2030, a 289% growth rate between 2023 and 2030, meaning FIs need to significantly shift their payments strategies.

Much of this growth will be attributed to businesses and their need for more efficient payment processes. Many small- to medium-sized businesses (SMBs) find that faster payments can offer meaningful benefits, such as easier cash flow management, minimized risk, faster availability of funds, and better customer experiences. In fact, small businesses that receive payments from individuals are more likely to rely on instant payment methods than their B2B counterparts.

For financial institutions, this means instant payments present an unprecedented opportunity to tap into the broad SMB market and grow this customer segment.

To adequately serve this diverse customer segment, banks should explore how instant payments have the potential to transform processes for SMBs and address challenges that have historically been tough to solve.

Improvement of SMB Operations

Over two-thirds of all registered business in the U.S. are classified as SMBs with less than 20 employees. With such limited staff, finding operational efficiencies are crucial, as each employee is likely serving multiple functions and juggling a variety of projects at any given time. Meanwhile, more than half of SMBs believe their business banking account offers no additional benefits over their personal account.

Businesses experience a multitude of benefits with faster payments, from faster receipt of funds, more efficient supplier payments, easier expense reconciliation and more. All of this helps reduce the time and effort associated with managing cash flow, as well as reduces the cost of transactions. Unlike processing a check, it’s much cheaper, faster and transparent to process a payment on one of the instant payment networks. This is an area where real-time payments can be a huge value-add for SMB customers.

Challenges Facing SMBs Related to Faster Payments

Instant payments do present some unique challenges and businesses must find ways to adapt certain accounting and finance workflows. For example, real-time payments eliminate the floating period where a business may take advantage of a few additional days of interest income on cash sitting idle in their account. This means some small businesses will need to be more careful when managing cash flow.

Oftentimes, small businesses struggle to gain a clear, comprehensive view of cash flow and payments because they use a variety of disparate tools to manage their finances. Banks are perfectly suited to help address these challenges. In fact, SMBs are increasingly turning to faster payments as a way to secure certainty and visibility around their business operations.

When banks combine faster payment offerings with more comprehensive financial management tools, automated bookkeeping or dashboards that provide a clear view of cash flow, they can empower their SMB customers to navigate this new world of finance.
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A Partner for the Real-Time Revolution

Choosing the right fintech partner can have significant benefits when implementing faster payments. An experienced partner can offer solutions built on the latest technology that equips financial institutions to remain agile and offer the best technology to their businesses and consumers.

Rather than go the DIY route or build payment capabilities in-house, partnering with a fintech often means community financial institutions will have fewer hoops to jump through to make real-time payments possible for SMBs across a variety of use cases.

Ready to get started with real-time payments for your SMB customer base? Let’s talk. Pidgin has already helped many financial institutions jumpstart their faster payments journey to support businesses in communities across America.