Instant Debit Payments: The Next Phase of Real-Time Payments

Faster payment methods are experiencing a surge in popularity as more consumers want to send and receive payments in a faster way

Faster payment methods are experiencing a surge in popularity as more consumers want to send and receive payments in a faster way. Real-time and faster payment networks such as FedNow, RTP, Same Day ACH, and Zelle, a peer-to-peer payment platform, are seeing rises in transaction volume and value as consumers demand more speed and convenience with their payments. FedNow, the long-awaited instant payment service built by the Federal Reserve Bank, was launched on July 20, 2023, to facilitate the sending and receiving of funds within seconds.

You could say that this launch completes the missing puzzle to establish a nationwide real-time payments solution. In a recent report, 2024 Trends & Predictions: Debit Payments, Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, describes how merchants are navigating card fees, the future of debit payments, and what customers and merchants want. How Merchants Navigate Card Fees Doing business, of course, comes with costs. But for merchants, the persistent pain point involves paying credit card fees. These are fees paid to the credit card provider to complete credit card transactions.

Current interchange fees range from 1% to 3% of the transaction amount. These fees can potentially erode the bottom line, so merchants have sought a workaround solution to offset these costs. One way is to encourage consumers to use debit cards. The current cap on interchange fees for debit cards sits at 21 cents and 0.05% of the transaction value. Tavilla detailed how two prominent players in the mobile phone industry, AT&T and T-Mobile, announced over the summer that for customers to receive their monthly discount via autopay, they must have their autopay set up with a debit card or a bank account. Everlane, a clothing store, has also found a way to encourage consumers to pay without the debit card option.

It’s an alternative payment method known as “Catch” that enables customers to pay through their bank account. When Catch is used as a payment method with Everlane, the customer earns store credit that can be used for any future purchases. Tavilla explains that although this is a niche option, a use case certainly exists. The Future of Debit Payments is Instant When it comes to the outlook on debit payments, the possibilities are endless. “Consumers are increasingly using mobile wallets, like Apple Pay, Google Pay as well as others,” Tavilla said.

“Many of the wallet users are using their debit cards to fund their payments through the wallet. “There’s also been an uptick in contactless cards. Most debit cards are now contactless. Our data shows that 64% of consumers say that they have at least one debit card that is contactless.

Shoppers are increasingly tapping to pay with debit cards and mobile phones, especially for everyday purchases.” More forward-looking statements by Tavilla reveal that as more financial institutions adopt real-time payments, funds will move a lot faster than they do on the current system those payments rely on, which is ACH. With ACH, payments still need a couple of days to settle. When it comes to moving money from P2P platforms to your bank, it can easily take a few days. However, certain banks have already made it possible to move funds instantly if they support real-time payments. What Customers and Merchants Want Customers and merchants ultimately share the same goal to meet their needs, and that is to pay less.

Customers are budget-conscious, and they want to maximize savings while ensuring that they still receive value. Merchants want to be able to control costs and ensure a profitable margin. This includes minimizing the amount they pay for transaction fees. “Regardless of whether you’re a consumer or merchant, cost reduction, savings, and discounts seem to be top of mind and an objective,” T

By Connie Diaz De Teran
Feb 09, 2024 00:00
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