How fast is fast enough?

When we look at fast payments data across countries, the US comes in pretty far behind in transactions per capita. And on the surface, this makes sense. FedNow is still new, and RTP volumes are relatively low.

But how do we capture what a lot of people experience as fast or instant – things like Zelle, Venmo, and CashApp – that often leverage traditional rails for the underlying settlement, but are relevant to how Americans move money?

Similarly, services like Visa Direct and Mastercard Send already facilitate real-time business to consumer disbursements. And same-day ACH has seen strong growth in recent years and proven to be fast enough for many use cases.

So join Russ Jones and Will Eisler at the Glenbrook water cooler as they debate a looser definition of fast payments, explore challenges for adoption of traditional fast payments systems in the US, and ponder if the US actually has a more advanced and widely adopted “fast” payments ecosystem when we consider how Americans are experiencing faster money movement.

 

 

 

 

Russ Jones: Hello, I’m Russ Jones, a partner at Glenbrook, and I’m here with my colleague Will Eisler for this Fanning the Flames episode of Payments on Fire.

Before we get started on today’s topic, I want to let everyone know about our upcoming Global Payments Advanced Workshop, this is a live virtual session being held September 16th and 17, so it’s two half days, and we’ll be taking a deep dive into the key concepts in global payments, the major payment systems in the UK, Europe, Brazil, and India. We’ll look at the evolution of the international wire system, cross-border card processing, and other alternatives up and coming in the world of cross-border, particularly stable coins.

Just like how we’re going to explore some lessons from other countries’ fast payment systems in today’s episode, we’ll be trying to understand how payment systems are evolving around the world. We’ll try to give you some valuable insights that can be applied in any role across the industry. And as a thank you for being a listener, we’ll give you a $100 off coupon today. Use coupon POF2025 on our website when you register, and we’ll be happy to extend that discount.

So let’s dive into today’s conversation. We’re going to be talking about something that just kind of came up around the Glenbrook water cooler a couple weeks ago and Will reached out to me and said, Hey, you got a second to chat about fast payments in the US? I said, Sure. Then an hour later, we thought, you know, maybe there’s a lot to this.

So Will, why don’t you add a little color to where your question came from.

Will Eisler: So, I was meeting with a colleague recently and we were looking at faster payments data across countries, and the US came in pretty far behind, near the bottom in transactions per capita. And on the surface that made sense to us. FedNow is still new, and RTP volumes are relatively low, but we were just wondering if we’re missing part of the picture.

What if a lot of what people experience as fast or instant, things like Zelle, Venmo, and Cash App just to name a few, are not captured in those stats, but are relevant to how Americans move money? These apps are ingrained in consumer behavior for P2P transactions, even if the underlying settlement often leverages other traditional rails rather than true instant payment rails.

Similarly, services like Visa Direct and Mastercard Send already facilitate real-time business to consumer disbursements. We also have same-day ACH which processes payments in batches for same day settlement, offering a faster alternative to traditional ACH, and has seen strong growth in recent years and proven to be fast enough for many use cases.

So I think if you take a looser definition of faster payments, the US actually has a pretty advanced and widely adopted faster payments ecosystem, and many Americans are experiencing that faster money movement even if it’s not what we typically consider fast payment networks.

Russ Jones: So Will, I think that’s right, to broaden it and look at the problem to be solved really. And here I’m not taking a narrow view of whether or not interbank settlement on an instant payment network is continuous or gross or net or whatever. I’m saying if you’re an end user and you’re just trying to pay a counterparty, a real life example, you’re just trying to pay somebody who has come out to your house and done some job for you and you don’t want to pay them with a check. You don’t want to say, Where’s my checkbook? You want to pay them electronically. And odds are good you don’t have a stockpile of cash in your house.

So someone comes out and they do something for you. You like to pay them instantly. They’d like to get paid instantly. Cash flow is a big deal. So how do you do it? There’s like a million different ways in the US to do it, which is why it doesn’t make sense, I agree with you. It’s why it doesn’t make sense to just look at the comparison of just RTP and FedNow volumes versus Pix and UPI and stuff like that.

So somebody comes out to my house and they do something and I owe them $700 for what they do. The first question I would say is like, Are you set up to receive Zelle? Because if they are, boom, we’re done. I’m set up to use Zelle. If they’re set up to use Zelle, then we’re done.

They’re like, Oh, no, I’m not set up on Zelle yet. I’m like, Well, what do you use? Oh, I like Venmo. Can you send me something on Venmo? I’m like, Yeah, wait a second. Let me get my Venmo app going. If they said Cash app, it’d be the same thing. So there’s a lot of ways for people just to spontaneously make payments to others. And I’m not saying this is person to person. These are business people, these are subcontractors, landscaping professionals with 24 people on payroll. You’re still doing Zelle payments to that type of a business. So there’s a lot of ways to move money instantly.

Certainly when you look at the success that Visa Direct and Mastercard Send, you called out those two services, they’ve both had explosive growth in the marketplace and a lot of that has to do with the fact that you’re pushing money to a debit card. And the debit card is an alias to a bank account. And Visa and Mastercard, between the two of them, they touch every bank account in the US. Those mechanisms, Visa Direct, Mastercard Send, they can be used by almost any business to instantly push money into somebody’s bank account. So those things have a big role to play.

And then we have to give a tip of the hat to same day ACH. In our workshops, we like to tell both sides of the story on same-day ACH. This is not an instant payment system. The money is not moving instantly between counterparties, but it’s moving a ton faster than it used to. It used to be a multi-day process to move money through the ACH system. And with same-day ACH funds can move, you initiate a same-day ACH transaction, and just a matter of three or four hours later, the funds are in the counterparty’s bank account. So it’s not, it’s not truly a fast payment, but it’s a fast, maybe a fast enough payment.

The ACH community might very well be right that that’s good enough. That’s what a lot of people like, and the numbers kind of bear that out. I think the last time I looked, same-day ACH volume, it’s growing faster than ACH volume, and I think it’s up around 4% of ACH volume now is being processed on a same-day basis. And this is a number that’s consistently grown quarter after quarter after quarter, the percentage of ACH volume that is moving through these same-day processing windows.

I think your instincts are right. There’s a lot of different ways to skin this cat. There’s a lot of ways to move money instantly in the US market. So I think it’s a legitimate approach. It is a legitimate sort of question to reframe things to what really matters is the end party, end user perspective. So, hats off to you, Will, for wanting to reframe the question and really look at the real world perspective here, I think.

The question that you were being asked, you’re poking around on, is how does the US stack up on per capita usage of instant payment systems? The underlying assumption is that there’s other countries, like Brazil with your Pix system and India with your UPI system. These systems are enormously popular and have very heavy consumer usage.

One of the challenges right off the bat is when you talk about Pix in Brazil, we talk about UPI in India, there’s one way to do it. You’re going to send money instantly in Brazil, you’re going to do it through Pix. It’s very fair to focus the volume measurement on Pix volume, and you certainly see a lot of that online. But in the US market, this is a gigantic economy, very large payments marketplace.

The other thing that strikes me about comparing FedNow slash RTP against the other real time, instant, fast systems around the world, whatever you want to call them, is those systems are wide open for all use cases. And RTP and FedNow, they go to market through the banks, and the banks are basically focusing use cases on business payments and business initiation of instant payments.

You would not be hard pressed as a consumer in India or Brazil to initiate an instant payment to your friend. You’d be hard pressed to do that in the US through either FedNow or RTP, because Zelle is the designated consumer vehicle for doing that.

Will Eisler: And just one thing that I’d add related to the fragmented payments landscape in the US, and really the strategic focus of some of the payment networks in certain use cases, is that part of this exercise with my colleague, we stacked up use cases against the payment networks. So we looked at P2P, C2B, Me2Me, B2C, B2B, even wallet funding and payroll. And what we saw was that each use case was, with the exception of C2B in person and C2B e-commerce, was well served by at least one of the faster payment networks when using this looser definition of fast payments networks in the US.

For example, P2P is well served by Zelle. Me2Me is well served by multiple such as FedNow and RTP. C2B bill pay is well served by same-day ACH. For B2C, you have Mastercard Send and Visa Direct, and even same-day ACH and RTP. For B2B, FedNow and RTP are playing an increasing role in these flows. And for wallet funding, you have multiple. For payroll, you have same-day ACH. So just another thing to make this point that the US has a more complex faster payments landscape than we sometimes think of when we limit the view to just RTP and FedNow.

Russ Jones: So, Will, what other factors do you think, behavioral factors, do you think might affect what we see in the US market?

Will Eisler: So one challenge that I would point to, especially when we look at countries like India and Brazil that have seen such strong adoption of their instant payment systems, especially for consumer payments when purchasing goods, is the strong culture, the deeply ingrained credit card usage, and particularly the attractive rewards programs that they offer.

I do see that as a challenge to that kind of widespread adoption of instant payments in the US. Credit card rewards, which exceeded $40 billion for mass market issuers in 2022, are largely funded by interchange fees paid by merchants. Consumers typically don’t see or pay those fees directly, so they may have less incentive to switch to A2A payment methods offered by instant payments, even though those A2A payments can be significantly cheaper for merchants.

I’m curious, Russ, if you do see credit cards as a significant hurdle and what else you see as challenges in the US?

Russ Jones: It’s an interesting question, Will, about the interaction between credit cards versus instant payment systems. The US market, when we point to this runaway success we see with these systems, we’re always pointing to countries that basically don’t have a robust credit card reward structure, so you’re probably not giving up anything in a lot of these countries.

In the US, it could be a completely different story, because of the ingrained reward sort of culture that’s built around credit cards. I think I saw a couple weeks ago that 90% of all credit card spending in the US has some sort of reward attached to it.

But the glimmer of hope here, and this is something that people always, when they come to our workshops, they’re always sort of surprised by is, credit card, credit card, credit card… most people buy using debit cards in the US. There’s more than two to one volume advantage in debit cards over credit cards.

Why is that? There’s no rewards on debit cards, right? That has to do with behavioral psychographic type of stuff. People like to pay with money they have to a very large extent. They don’t want to go into debt. They don’t want to pay interest. If they can buy things without having to borrow money a lot of people like doing that. It’s very much the current culture in the United States.

So to that extent, I think the instant payment phenomena tracks the debit card much more so than tracks the credit card, if you will. But you’re right that every country’s a little bit different, a little bit different culture, little different motivations, from a consumer point of view.

What you’re really framing up there, because credit cards generally aren’t used in the person to person use case, they’re used to buy things. So you’re looking at commerce use cases and instant payments fit there, you see that in other countries. But in the US, the focus really hasn’t been on fast payments to buy television sets, the focus there is on credit cards to buy television sets, right? You’re using fast payments to pay bills, to disperse funds quickly from big company to a counterparty. You’re using fast payments for B2B, because of the data rich ability it has. There’s going to be, I think, ample opportunities in the US for these instant payment systems once they get past a lot of the early adoption hurdles that you were referencing.

Will Eisler: Sure. I’ll also just touch on a few of the critical factors that drove rapid adoption of instant payments in countries like Brazil and India. They’re such good examples of countries that saw widespread adoption of instant payments. Some factors were strong public sector and central bank leadership.

The Central Bank of Brazil mandated participation in Pix for large banks and kept fees. Minimal. India’s UPI, supported by the Reserve Bank of India, also played a large role. And then another factor was having open ecosystems and non-bank participation, allowing diverse players, especially non-bank payment service providers and fintechs. Like for India’s UPI, involving fintechs like PhonePe and Google Pay.

And another factor as we’ve discussed a little bit that lacks in the US and is really much stronger for credit cards in the US is just that user-centric approach and experience, having user-friendly interfaces, QR codes, and alias systems. So those are a few factors that I think have led to strong growth in other countries.

And now just to mention a couple other challenges that we see in the US besides credit card entrenchment. There is network fragmentation. The US has two competing instant payments rails with RTP and FedNow, along with various existing faster payments networks like Zelle, for example, creating a challenge to achieve true ubiquity. You have those different networks playing different roles across different use cases.

Another challenge is the high upfront cost and implementation challenges for FIs. They face significant cost and operational hurdles including resources, infrastructure changes, and staffing, especially when signing on to be a Send institution. We’ve seen many more banks join as Receive banks.

And then just one other thing I’ll mention, Russ, before passing it over to you to get your thoughts, is just on fraud concerns. The instant and irrevocable nature of instant payments heightens the risk of fraud, particularly authorized push payment, or APP, fraud. That is a particular concern when it comes to consumer to business payments where people are able to rely on dispute mechanisms with their credit cards currently, which is a concern when it comes to instant payments.

Any thoughts on those areas that have been helpful to growth in other countries or harmful to growth in the US and where we go from here?

Russ Jones: One of the silver linings of being late to the party on instant payments is we get to see what’s already happened in other countries. We get to learn what works, what doesn’t work, what needs to be incorporated into these types of systems in order to make them as robust as possible.

One of the principles in instant payments is that they use the push transaction model. They’re irrevocable and they don’t have dispute mechanisms and that is not accidental. That’s super deliberate. It’s one of the ways that people who design these systems, one of the techniques they use to keep the systems low cost. The reason that these systems are so incredibly low cost, it’s because they don’t have the robustness we see in other types of systems. So it’s more expensive to accept cards as an example, but you get a lot more.

So that type of thinking, that was very much in vogue 10 years ago. But in today’s world, some of the leading countries that kind of had good success with instant payments are realizing that they need to start to factor in different approaches to deal with disputes and, in particular, deal with fraud and scams, if you will. You’re starting to see different approaches that are being built into, being retrofitted into these systems in order to make them more robust.

So the big thing in the UK, for example, is confirmation of payee. So you just can’t send money to a random address, a random fraudster’s address. You actually have to go through some, the sending bank has to do some confirmation of who the funds are being sent to. And that confirmation step, it turns out it cuts down a lot on the fraud problem in these systems.

You’ll hear that characterized as authorized push payment fraud. Where, if you think about the words in that sentence, authorized push payment, it’s not that somebody’s taken over the bank account. It’s not that someone has counterfeited anything. It’s that you have the actual owner of the account properly validated and strongly authenticated by their bank is initiating, deliberately initiating, a payment to a fraudster. That’s a completely different kettle of fish than what we have dealt with in consumer payments before.

This confirmation of payee is turning out to be a big deal in the UK. It’s spreading to across the EU. You’re starting to see other countries show a lot of interest in retrofitting that to their fast payment systems. You’re also starting to see some rules, system rules, network rules, if you will, that create the sharing of losses between the sender’s bank and the receiver’s bank and starting to force the banks to have some skin in the game so that when someone is being manipulated by a fraudster, with those types of rules, the banks have a self-interest in making sure that they’re doing what they can to stop that and to prevent that from happening.

So you have to look at it holistically and that’s the good news and the bad news in the US payments industry There’s a lot of ways to do things and people like competition. They like the winner to prevail in the marketplace. But at the same time, the downside is you have a lot of fragmentation. You have interoperability problems.

It’s not a given that once the systems are created, they never change. And it could very well be that we will see someday some sort of government push to get stronger consumer protections in instant payments. We’ll have to see. More interoperability in that whole space, we’re starting to see more interoperability with digital wallets. PayPal’s recently made some announcements there. Visa’s made some announcements about creating wallet interoperability. So, something to keep our eye on for sure.

Will Eisler: Absolutely.

Russ Jones: Well, thank you Will, and thank all of you for listening. Until next time, keep up the good work and bye for now.