Today’s customers expect fast, 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; This accounts for an average of 2.24% of each transaction.

Instant payments can offer a convenient solution that helps businesses reduce transaction fees and gives customers the options 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 allow money to be delivered within minutes or hours.

Note that while the term “real-time payments” refers to the broader concept of instant payments, RTP (real-time payments) refers to a specific payline. There are currently several different types of real-time payments available in the US:

• FedNow: A real-time payment service developed by the Federal Reserve and launched in 2023. It was designed to make instant payments more accessible across the US financial system.
• RTP (Real Time Payment Network): Operated by The Clearing House (the same organization that processes ACH payments), this network has been available since 2017. It facilitates real-time transactions for banks and their customers.
• Same Day ACH: While not as fast as the other two payment methods, same-day ACH offers an expedited version of traditional ACH transfer and typically processes payments the same day.

Why is this important for small businesses? Real-time payments are quickly becoming one of the most popular payment types worldwide. 266.2 billion real-time payment transactions were made in 2023.

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Instant payments are cheaper and improve cash flow

There are many advantages to adopting real-time payments for small businesses. For starters, it’s often cheaper than credit cards, which have high transaction costs. Same-day ACH typically costs between $1 and $5, regardless of how much money is transferred. RTP costs are typically around $0.25, while FedNow charges $25 per month and usually less than $0.01 per transaction, depending on the type of transaction.

Switching to instant payments could save small businesses thousands of dollars in annual transaction fees. Assuming annual sales of $100,000 and 1,000 total transactions, here’s the estimated cost breakdown for each payment channel:

Data source: Author’s calculations.

Although this estimate assumes all customers use the same payment channel (which is unlikely), The cost savings of real-time payments cannot be ignored.

Real-time payments also make it easier to manage cash flow by funding your business in a day or less. Instead of waiting for credit card batches to process (or relying on business credit cards or loans to fill the gap) before ordering more inventory, your business can access funds instantly.

Things to consider before implementing real-time payments

Before diving headfirst into real-time payments, there are a few things to keep in mind. While real-time payments will give you faster access to cash, fees may vary by service provider. Some banks may charge additional fees; so be sure to compare the actual costs with the resources you will need to implement them.

Another issue is customer demand. If you see customers in person, ask them if they will use real-time payments. This will help you decide whether it’s worth adding real-time payments before you invest time in the app.

How to apply instantly

Implementing instant payments may be easier than you think. Many banks and financial institutions have integrated RTP or FedNow into their banking services, and choosing this option can be as easy as calling your bank. Payment processors like Stripe, PayPal, and Square often offer faster payment options. Although they are not always connected to official real-time payment networks, they can provide almost 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 can benefit your business.