Real-time payments are all the rage in 2023—and for good reason. From The Clearing House to The Federal Reserve, leading payment providers are jumping at the opportunity to deliver faster transfer methods to eager users. But, while consumer benefits are clear and large financial institutions are catering to up-market customers, it’s important that we don’t overlook small businesses.
Cash flow mismanagement is already one of the leading causes of small business failure. Now, in the face of a possible recession, owners and entrepreneurs need even more control over their payments and deposits. The problem is, traditional transfer methods such as checks or ACH transfers can take days or even weeks to clear, forcing these customers into a dangerous holding pattern. That’s why solving for speed is more important than ever.
There’s a real-time need for real-time payments
In times of stability and growth, small businesses tend to carry larger balances. They have the luxury of making payments without worrying if they have enough money in the bank. But the market is slowing, interest rates are rising, and balances are shrinking. As a result, business owners are becoming much more meticulous in managing their cash positions, ensuring they keep as much money in their accounts as possible.
Instant transfer methods, like real-time payments, let them do just that.
Rather than paying bills and invoices 3–5 days before they’re due, as with traditional payment methods, real-time payments unlock the power to pay at the last possible moment. At the same time, the instantaneous transfer of funds means that when a customer pays for a product or service, the money is deposited into the small business owner’s bank account in a matter of seconds. Considering 30% of all ad hoc receivables were paid late, and 6 out of 10 of those were over a month behind, this frees up an enormous amount of value.
It pays to step up for small businesses
For those businesses with tight operating balances and lumpy cash flows, real-time payments represent a game-changing shift in how they manage their money. By getting paid faster and paying bills later, small businesses are in a much stronger position to fund their operations. And with interest rates rising to unprecedented levels, a reduced reliance on working capital puts even more power back in business owners’ hands. That’s why access to these payment rails has become our customers’ single biggest request over the past six months.
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While faster payments have long been the norm among direct-to-consumer customers, small businesses have been left to battle outdated transfer methods and inconveniently long clearing times. The irony is, it’s small businesses who would benefit most from the technology. Among increasing recessionary pressures, real-time payments provide the flexibility they need to take control of their cash flow and keep their doors open.
But adoption among fintechs and payments technology providers has been slow.
There are only 282 participants on The Clearing House’s RTP® Network, most of which are major banks and credit unions. For real-time payments to be truly effective, they need to be able to work seamlessly across all of our customers’ financial apps and accounts.
This presents a massive opportunity for small business neobanks to step up. If they haven’t already, leaders in this space should prioritize getting faster transfer methods, like real-time payments, on their roadmaps this year. Doing so would mean providing a critical solution to a real customer need, while also delivering impact worth paying for.
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