Banks Wary of Instant Payments Should Start by Just Receiving Them
By Joseph A. Giannone
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Executive Summary
- Banks hesitant about instant payment fraud can begin by only accepting inbound transfers, delivering immediate value to customers while gaining operational experience with real-time rails before tackling the fraud controls outbound payments require.
- Consumers and small businesses hold significant funds in platforms like Venmo, Square and Robinhood. Banks that accept instant transfers become the preferred destination for those balances, strengthening loyalty and reducing the risk customers shift money elsewhere.
- Unlike outbound payments, receiving funds involves no reversal exposure or irrevocability concerns. Money arrives with finality, eliminating the exception handling associated with ACH returns or wire transfers while giving institutions time to build fraud defenses for sending.
Adoption of instant payments is accelerating across the industry, but many financial institutions remain cautious. These banks and credit unions often focus on the challenges related to customers sending money in real time, including concerns about increased fraud risk. Yet for both consumers and small businesses, the ability to receive funds instantly may represent an equally high-impact value proposition — one that has the added advantage of letting participants set aside concerns about risk related to irrevocability.
Instant payments can be transformative for households and businesses alike, helping them address critical cash flow needs and eliminating uncertainty over fund availability. Recent advances in payment technology, including the launch of Federal Reserve Financial’s FedNow network, mean transfers that usually take three days to post now arrive in seconds.
Against this backdrop, it’s essential for financial institutions to get started — and receiving payments may be the right first step. “When banks talk about instant payments, they often fixate on the senders but there are very real advantages to just receiving funds instantly,” says Martin Lindholm, Director of Technical Product Management at Narmi, a technology company that provides digital banking and account-opening software to banks. “It’s only natural that people and businesses want their money in the bank, right away, not held captive by an intermediary.”
This article takes a closer look at the recipient value proposition for instant payments, and how banks and credit unions can activate it.
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Use Cases and Applications
A significant share of consumer and small business funds now sit in fintech applications, including digital payment utilities, gig-work apps, and brokerage platforms — ranging from Venmo and Square, to Stripe and eBay, to Robinhood and Wealthfront. Many such platforms offer instant withdrawals, for a fee, and only if the customer’s bank can accept funds in real-time.
Financial institutions that accept those instant transfers become a preferred destination for both consumer and business funds, strengthening loyalty and reducing the risk that customers shift balances elsewhere.
The impact of settlement delays can be especially acute for small businesses, especially those with tight working-capital cycles. A one- or two-day wait for funds can determine whether a company meets payroll or restocks inventory in a timely manner. “For a small business, cash flow is everything,” Lindholm says. “When funds post instantly, it eliminates the guesswork that comes with waiting, so decisions hinge on what they have today, not what might arrive days later.” For consumers, meanwhile, the ability to pull balances instantly into their bank account can help avoid a short-term cash crunch or the need to utilize a short-term credit facility that may impose a much larger fee.
Earned-wage access (EWA), which more employers now offer, is another capability banks and credit unions can support once instant payment is enabled. EWA lets employees access wages they’ve already earned outside the regular payroll cycle. In contrast, traditional pay cycles make employees wait two weeks for wages, often with additional settlement delays. Especially for lower-income hourly and service-sector workers, such lags can lead to overdrafts or compel workers with immediate cash needs to seek out costly payday loans.
Financial institutions should be aware that some employer HR teams provide employees with lists of banks or credit unions — or specialized fintechs — that support instant payroll deposits, potentially giving those institutions a competitive edge. In addition, Lindholm said, “EWA beneficiaries may transact more frequently, becoming more aware of their financial institution in the process, and recognizing the benefit it’s providing.”
Reducing Complexity and Risk
For many institutions, the hesitation around instant payments stems from concerns about irrevocability and the fear — often overstated — that “faster payments equals faster fraud.” Those concerns largely apply to sending money, because institutions must make real-time decisions about a transaction’s legitimacy. Receiving payments, by contrast, carries far less exposure. Funds arrive with finality, and the receiving institution does not face the reversal risk typically associated with ACH debit or the exception handling that often comes with wire transfers.
A receive-first approach also gives financial institutions the ability to deliver immediate value to consumers and small businesses while gaining experience with real-time settlement — before they undertake the fraud-control and risk-governance work outbound instant payments require. For many banks and credit unions, it may strike the right balance between innovation and caution.
Instant payments, both sending and receiving, are also simpler in operational terms. Legacy rails involve settlement windows, exception handling, and complex follow-up when something goes wrong. Instant rails eliminate most of that friction. The transaction posts in seconds and the receiving institution is verified in the moment; and there is no multiday period in which money is in transit. For banks and credit unions accustomed to managing the operational overhead of ACH returns or wire exceptions, this alone can be a meaningful improvement.
It’s worth noting the importance of integrating instant payments into existing customer workflows — which is also a hallmark best practice of fintechs’ user experiences. Alternative approaches, Lindholm notes, often result in dead ends: users click into an instant payments area only to discover the party they’re trying to pay can’t accept funds in real time.
Removing jargon also helps speed adoption, particularly for users who have already encountered similar options in fintech apps. When a counterparty supports real-time payments, the interface offers choices like “deliver instantly” or “deliver in 1–3 days,” rather than asking customers to select a rail. “When customers move money, they’re thinking about outcomes, not payment rails, ” Lindholm said. “They want to know when funds will arrive and what it will cost.”
Looking Ahead
Once institutions gain traction with instant receipt, the next step is determining when to enable outbound payments. Institutions preparing for this phase must enhance several layers of their risk framework: real-time transaction monitoring, device- and session-level intelligence, customer-segment–specific limits, and policies that define which users or business segments qualify for immediate access.
Drawing on their experience with receive-only applications, institutions can evaluate inbound volume and patterns to size the opportunity more accurately and tailor limits, controls, and interfaces accordingly. Among other things, Lindholm said, live usage data lets institutions understand which customer segments value instant movement most, how often funds are being pulled from fintech platforms, and where demand for outbound capabilities may emerge.
Operationally, instant rails may ultimately simplify the institution’s payment landscape. FedNow’s design — immediate posting, automatic acceptance or rejection, and no multiday settlement window — eliminates many of the edge cases associated with ACH returns or wire exceptions. Over time, that can reduce back-office handling and improve predictability for both customers and treasury teams.
The receiving side of instant payments already provides tangible benefits: faster access to wages, improved cash flow, reclaimed deposits, and greater certainty. For financial institutions, enabling instant receipt is both a competitive differentiator and a logical first step toward real-time banking.
