Banking Revolution: The Shift to Instant Payments

The commercial banking and payments industry is experiencing a profound transformation driven by technological advancements. As new technologies reshape both corporate and consumer expectations, businesses are striving to remain competitive, manage risks, and prepare for upcoming changes.

Recent analysis highlights significant shifts in banking trends, such as the rise of instant payments, the growing use of ePayables, and the evolution of cross-border payment methods. These trends indicate that some traditional banking practices may become obsolete.

Instant payments, although representing the future of banking, are already making a notable impact. For instance, FedNow, introduced in July 2023, has seen a considerable increase in participating banks, growing from 300 at the end of 2023 to 400 by early 2024. This growth is expected to continue. The demand for instant payments is not confined to the U.S.; it is a global trend. Systems like India’s UPI and Brazil’s Pix processed over 100 billion transactions in 2022 alone. The increasing adoption of instant payments in regions like India, Brazil, Asia, and Europe suggests that cross-continental and cross-ocean payments are on the horizon.

As instant payments gain traction, traditional banking practices such as paper checks are likely to become outdated. The continued prevalence of checks is surprising, and there may be intentional efforts, potentially including government or corporate initiatives, to eliminate their use. Such measures could include tax incentives or financial rewards to encourage a shift away from paper checks.

Another area of concern involves small-to-midsize banks facing challenges due to persistently high interest rates. These banks may experience increased failure rates, particularly those not deemed systemically important. Systemically important banks are those whose failure could significantly disrupt the financial system, potentially causing liquidity or credit issues across institutions. With growing public resistance to government bailouts, smaller banks may struggle to survive under these economic pressures.

In addition to these changes, the banking sector is witnessing the rise of Automated Clearing House (ACH) transactions, which have seen the most rapid growth among payment types. The adoption of ePayables, which utilise credit lines without physical cards, is also increasing. EPayables offer a cost-effective alternative to wire transfers and could facilitate cross-border transactions, a segment that is experiencing heightened demand.

While wire transfers and correspondent banking remain significant, they are being gradually replaced by faster, more secure methods. Instant payments and ePayables are emerging as key disruptors, with credit card companies poised to drive cross-border payments due to their extensive global networks.

The banking industry is evolving rapidly with technological advancements driving changes in payment methods and banking practices. The shift towards instant payments, ePayables, and the potential obsolescence of traditional methods reflect the ongoing transformation of the financial landscape.