Don’t Underestimate the Security Features and Opportunities of Instant Payments
By Nicole Volpe, Contributor at The Financial Brand
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For banks and credit unions looking to deepen their relationships with consumers and businesses, being able to offer instant clearing and settlement seems like a critical capability. But even as payment technology has leaped ahead, putting effective solutions in reach, some financial institutions are hanging back because of a lingering perception that instant payments increase the risk of fraud.
For banks, fraud is a top concern, and it continues to happen across all payment methods as fraudsters continue to evolve their tactics. When it comes to instant payments, it boils down to this: At a time when cybercrime — hacks and scams coaxing people to transfer money to bad actors — is proliferating, the ability to move money faster evokes concerns of faster fraud.
And yet, institutions with this mindset risk cutting themselves off from key opportunities to grow revenue, enhance service quality, and strengthen trust across the payment value chain. They may also be overlooking features and functionality that exist on instant payments infrastructure like the Federal Reserve’s FedNow® Service to help mitigate risk.
“There are people sitting on the sidelines because they are unsure of the risk mitigation capabilities that exist with instant payments,” said Erik Van Bramer, Senior Vice President and Head of Customer and Industry Relations for Federal Reserve Financial Services. “That’s unfortunate, because these instant payments were created to expand access — especially when it comes to providing smaller financial institutions with the instant payment advantages that many large banks are already utilizing.”
This article explores the opportunities instant payments can open up throughout the value chain. It also examines fraud concerns and looks at how industry leaders are managing risks in ways that let financial institutions participate with more confidence.
Reality Check
Let’s start with the fraud case. According to the 2025 AFP Payments Fraud and Control Survey, fraud attempts remain widespread across payment channels. Checks were the most common vehicle for attempted or actual payments fraud, cited by 63% of organizations, followed by ACH debits (38%) and wire transfers (30%), while only 2 to 3% reported any fraud attempts involving real-time payments.
Van Bramer counters the idea that irrevocability always equals increased risk. “We think irrevocability is especially important when you think about small-business use cases,” he said. “It’s a ‘good funds’ model, which helps to protect both sides of the transaction — you know you’ve been paid, and you can act on it with confidence.”
He also noted FedNow features and tools add safeguards designed to reduce risk, including the ability to set transaction-value limits and maintain ‘negative lists’ of counterparties that have been involved in fraud. A new pilot program for an upcoming FedNow network intelligence tool is building on that foundation, he said, by giving participating institutions the ability to do a “pre-check” on receiver accounts via API before making a payment.
Instant (Good) Karma
Instant payments can also be a critical lever for financial institutions and their commercial clients to grow and deepen their respective customer relationships, and the range of potential use cases is expected to expand further as the FedNow Service increases its transaction limit from $1 million to $10 million. Areas of unmet demand that offer meaningful upsides include: everyday liquidity needs, where individuals and small businesses seek immediate access to earned or transferred funds; business-to-business settlement, where working-capital efficiency depends on faster confirmation and release of funds; and time-critical disbursements, where speed directly reinforces trust and satisfaction.
Digital wallets. One of the clearest opportunities involves using instant payments to fund and defund digital wallets rather than waiting for the money to clear and settle between accounts.
By enabling those balances to move instantly into a checking or savings account, banks and credit unions can help customers consolidate their finances and strengthen liquidity. For digital wallet providers, it’s an opportunity to meet user demand for instant access to funds and build trust with transparency.
Van Bramer sees this as an especially compelling use case for both financial institutions – and fintechs. “With usage continuing to increase, being able to fund and defund digital wallets is a powerful opportunity to give people the immediacy they have come to expect,” he said.
Earned wage access. Earned wage access (EWA) is another fast-maturing use case. It began as a niche solution for hourly and on-demand workers, and has spread across retail, hospitality, and manufacturing, as employers increasingly offer same-day pay as an employee benefit.
EWA, which lets workers draw on a portion of their earned wages before payday, was initially fulfilled through paper checks and then ACH transfers (which is also the dominant payroll delivery channel). But those payment methods can take up to three days to settle, undermining the premise of EWA, which is to provide workers faster access to their pay. ACH may be optimal for routine payments batch-loaded by payers, such as biweekly paychecks. But it’s less suited to ad-hoc payments that are meant to fulfill an immediate need.
The FedNow Service enables EWA funds to move instantly. In these settings, employers can contract with a third-party EWA provider that advances funds based on hours already worked (but not yet paid). Those advances are deposited instantly into an employee’s bank account or prepaid card.
For workers, the ability to receive pay immediately after shifts can help them stay current on bills and meet day-to-day living expenses — tremendous relief for workers struggling with access to funds. For employers, it can help them attract and retain talent with faster access to funds and streamline their internal payment processes.
Disbursements. Instant payments are transforming how banks, credit unions, and other financial service providers move money to settle obligations, distribute funds, and fulfill claims. As with EWA, institutions that enable these transfers strengthen long-term trust and loyalty by demonstrating high operational standards and a clear commitment to getting people the funds they’re owed without delay.
With funds reaching recipients in seconds instead of days or weeks, reconciliation and administrative overhead are sharply reduced. Instant payments eliminate the timing gaps that make reconciliation slow and error-prone by settling transactions immediately and confirming them for both parties. Because the funds are final and include structured data such as invoice numbers, payments can post automatically without manual matching or suspense entries—producing faster close cycles, lower costs, and real-time visibility into cash flow.
In auto lending, instant disbursements allow lenders to fund dealers immediately once a loan is approved, enabling a more streamlined experience during weekend car purchases and reducing friction for new car buyers. Meanwhile, with insurance, instant claim payments can make a critical difference for policyholders facing large, unexpected expenses. The experience reinforces confidence in both the insurer and the financial institution that enables the payment.
A similar dynamic applies to emergency relief programs, where public agencies and private organizations can route disaster assistance directly into verified bank accounts ensuring that funds reach people in need quickly. Van Bramer cited a recent announcement that the U.S. Treasury has enabled the FedNow Service for instant disbursements for federal agencies, including FEMA, as part of its Digital Payout Program.
Confidence Gain
For institutions still hesitating because of integration or onboarding concerns, the efficiency advantages alone may prove a game-changer. “Giving customers — whether it’s consumers or businesses — the ability to make or receive payments exactly when they want brings efficiencies to the broader economy and the entire banking ecosystem,” Van Bramer said.
As innovative use cases like these expand across the ecosystem, a clearer understanding of why instant payments matter is beginning to emerge. In fact, the decision to implement instant payments becomes as much about how much control you want over the transaction as it is about how fast you want it to happen.
Viewed in this way, the key advantages for instant payments start to look like this: liquidity on demand, without settlement lags; reduced reconciliation effort and expense; and choice and transparency given back to the transactors. Every payment is visible, final, and happens within seconds at the time of the parties’ choosing.
