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The Rise of Instant Payments: What Small Businesses Need to Know
Today's customers expect quick, seamless transactions, and small businesses are under increasing pressure to deliver. Many small businesses rely on credit cards to accept payments, which can be costly -- averaging around 2.24% of each transaction.
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Instant payments may offer a convenient solution that helps businesses cut down on processing fees and provides customers with the choices they want. Want to learn more about real-time payments and how they work? Here's what your small business needs to know to stay competitive, improve cash flow, and deliver a better customer experience.
What are instant payments?
Instant payment refers to several different infrastructures used to transfer funds in real time or near real time. Unlike traditional payment systems, also called payment rails, which can take several days to process, real-time payments deliver funds in minutes or hours.
While the term "real-time payments" refers to the broader concept of instant payments, keep in mind that RTP (real time payments) refers to a specific payment rail. There are currently several different types of real-time payments in the U.S.:
FedNow: A real-time payment service developed by the Federal Reserve and launched in 2023. It is designed to make instant payments more accessible across the U.S. financial system.
RTP (Real-Time Payment Network): This network, operated by The Clearing House (the same organization that processes ACH payments), has been in place since 2017. It facilitates real-time transactions for banks and their customers.
Same-Day ACH: Though not as fast as the other two payment rails, same-day ACH offers an expedited version of the traditional ACH transfer, often processing payments on the same day.
Why does this matter for small businesses? Real-time payments are fast becoming one of the most popular types of payments worldwide. In 2023, there were 266.2 billion real-time payment transactions.
Instant payments are cheaper and improve cash flow
For small businesses, embracing real-time payments has several advantages. For starters, it's usually cheaper than credit cards, which come with high processing costs. Same-day ACH generally costs between $1 and $5, no matter how much money is transferred. RTP costs are typically around $0.25, while FedNow charges a $25 monthly fee and generally less than $0.01 per transaction, depending on the type of transaction.
Switching to instant payments can save small businesses thousands of dollars in processing fees annually. Assuming $100,000 in annual sales and 1,000 total transactions, here's an estimated cost breakdown for each payment rail:
Payment Rail
Transaction Fees (Per Year)
Credit cards (2.24%)
$2,240
FedNow ($25/month + $.01 per transaction)
$310
RTP
$250
Same Day ACH
$1,000
Data source: Author's calculations.
While this estimate assumes all customers use the same payment rail (which is unlikely), the cost savings of real-time payments can't be ignored.
Real-time payments also deliver funds to your business in a day or less, making it easier to manage cash flow. Instead of waiting for credit card batches to process before you can order more stock (or relying on business credit cards or loans to bridge the gap), your business gets immediate access to funds.
What to consider before implementing real-time payments
Before diving head-first into real-time payments, there are a few considerations to keep in mind. While real-time payments will give you faster access to cash, the fees can vary by service provider. Some banks may tack on additional fees, so make sure to weigh the true costs compared to the resources you'll need to implement them.
Another consideration is customer demand. If you see customers face to face, ask them if they would use real-time payments. This will help you judge whether it's worth adding real-time payments before investing time in implementing them.
How to implement instant
Implementing instant payments might be easier than you think. Many banks and financial institutions have integrated RTP or FedNow into their banking services, and opting in might be as easy as calling your bank. Payment processors like Stripe, PayPal, and Square often offer options for faster payouts. While they aren't always connected to official real-time payment networks, they can still provide near-instant access to funds.
As a small business, you need to stay competitive. As instant payments become more popular, make sure you understand them and how they could benefit your business.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends Flow and recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
