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Originally Published on The Appy Hour.

In today’s fast-paced world, instant gratification has become the norm. Whether it’s getting food delivered to your doorstep or sending money to family or friends instantly, the convenience of immediate transactions from person to person is unparalleled. However, when it comes to small- and medium-sized businesses (SMBs) in the US, the world of trading instant payments has been largely inaccessible. This is about to change with the now-imminent launch of The Federal Reserve’s FedNow® Service.

FedNow is truly a game-changer when compared to payment methods like ACH and checks. It’s set to revolutionize the payment landscape by providing over 10,000 US financial institutions with the capability to offer SMBs access to instant payment technology. While popular private peer-to-peer (P2P) platforms like Cash App and Venmo or bank-owned apps like Zelle have made waves in the consumer payment market, they don’t necessarily provide a good solution for businesses. This is where the FedNow Service can step in.


Fed-What? The FedNow Service

Finally, financial institutions across the USA will be able to offer safe and efficient instant payment services 24/7/365. Unlike traditional payment methods with delays and processing times, FedNow enables these financial institutions to send and receive funds instantly. Businesses using these institutions will no longer have to wait for checks to clear or endure lengthy processing times from ACH transfers. With FedNow Service, funds are available within seconds, unlocking a level of financial agility that was once only seen in other countries or through P2P apps.

The advantages of instant payments are obvious. Businesses can experience improved cash flow, enhanced customer experiences, and streamlined payment processes through immediate access to funds, empowering them to seize growth opportunities and overcome sudden challenges. Chasing late payments is tiring, and no one enjoys asking if a check got lost.

With instant payments, the payment is either sent or not. There’s no meaningful middle ground where you’re waiting days or weeks to find out if a payment is going through or not. The RTP® (Real-Time Payment) Network by The Clearing House is currently used by banks like JP Morgan Chase for instant payments, and it only allows 22 seconds of processing before the transaction is sent or canceled. Now that’s fast.

The biggest change for accountants will be how instant transactions transfer. Because they’re so fast, there’s no opportunity for batching, as is often seen with ACH. This provides an incredible opportunity for B2B payment service providers to offer accurate automated accounting reconciliation. Not only can accountants look forward to knowing the payment status in real-time, but if they’re using a provider that integrates with their accounting platform, then that payment will also be reconciled in the books only seconds after depositing into the payee’s bank account.


Transform small business payments as you know it

Instant payments have the potential to drastically change various business scenarios. Imagine you’re a business owner who just experienced a critical breakdown on a key piece of equipment. You need to order the parts ASAP, but they won’t ship until you’ve paid in full. With instant payments, you can settle with your vendor in only seconds and forget about those initial delays.

Alternatively, what if you receive a big order, but you don’t have goods on hand to cover it? If your vendor wants payment before delivery, instant payments could be your savior. In some of these cases, credit cards can also save the day. But many payment processors charge high fees (up to 3.5%) for credit cards, and often vendors pass that along to their clients. With instant payments, they’re usually free or have minimal charges on par with services like QuickBooks Payments.

FedNow is due to launch at the end of July, and over 50 financial institutions have already been certified as Ready to offer instant payments once available. If you want to stay at the forefront of client expectations when it comes to quick payments, embrace the forward momentum and consider switching to a payment provider that works with the FedNow Network or the RTP Service.


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