What a real-time money movement revolution means for banks and SMBs

The real-time money revolution is here, and soon, how we pay and move money will change dramatically. Exacerbated by the COVID-19 pandemic, there is increasing demand for safe and convenient payment methods. The result is a new paradigm and expectation for banks to facilitate transactions in seconds, providing immediate access to funds and transactions, 24/7.

This shift has been further advanced by the introduction of the Federal Reserve’s instant-payment system, FedNow, plus the three other real-time payment companies that combined accounted for billions of dollars in real-time payment volume last year: Venmo, Zelle and TCH RTP. The desire for faster payments continues to grow in our increasingly digital and on-demand world.

The demand isn’t just from consumers. According to the Federal Reserve, 66% of businesses say they will likely use faster payments more often in the future. But for small businesses, the impact of real-time payments is more complex, and they must be aware of the benefits and the risks.

Approximately 99.9% of businesses in the U.S. are classified as small businesses. Whether these organizations have hundreds of employees or are a sole entrepreneur, they’re all being forced to navigate a challenging landscape, including high inflation costs and interest rates, supply chain issues and difficulties attracting and retaining reliable support. Small businesses, which form the backbone of the economy, must find ways to effectively adapt to the new paradigm.

On a positive note, businesses will benefit from faster paychecks and supplier payments, easier expense reconciliation and faster production and delivery to consumers. On the other hand, the near-immediate payments processing eliminates float, meaning no more taking advantage of a few additional days of interest income on idle cash. Such factors will force small businesses to manage their cash more carefully.

This is an area where banks can and should step in to help and support these small business customers. Historically, small businesses have grappled with fragmented financial solutions to manage their finances, cash flow and payments, leading to incomplete financial views and operational inefficiencies. Recognizing this, banks have a unique opportunity to provide comprehensive financial management tools, supporting a critical segment while generating new sources of revenue. From data integration for better insights to automated bookkeeping capabilities, banks can empower small businesses to navigate the complexities of modern finance with confidence.

Banks can also provide more sophisticated digital payment capabilities, such as the ability to accept digital payments from invoiced customers, initiate real-time payments and use a smartphone to accept in-person, contactless payments. If businesses’ institutions fail to offer these robust options, they will look to third-party payments solutions such as PayPal, Square and Venmo instead, costing banks to miss out on revenue, a significant transaction volume and customer loyalty and engagement.

Gig workers, with their unique financial intricacies and limitations, present another opportunity for banks to provide more narrowly tailored support. Gig workers are a vital segment of the U.S. economy – and the fastest growing, expanding three times faster than the full-time workforce. However, they face specific issues like saving for retirement without a traditional 401(k), medical coverage and taxes. Budgeting and cash flow management are especially critical to these individuals as their income is likely to vary over time. Offering advisory and consultative services can help institutions establish loyalty and trust among this underserved segment.

Education and awareness play a crucial role in driving the adoption of digital payments among small businesses and gig workers. While many still rely on traditional payment methods like checks, the benefits of digital payments, which include security, convenience, and enhanced financial control, are undeniable. Banks can and should play a critical role in this education, helping small businesses and gig workers strategically and efficiently adopt the methods that work best for their unique needs.

While there is no crystal ball to predict when the universal adoption of real-time payments will occur, the real-time money movement revolution is coming and will support new ways for people to interact with their financial institution to manage and move their money. Banks must prioritize technology partners that offer modern, cloud-based infrastructure to meet the evolving needs of not only their consumers, but small businesses and gig workers as well. Stronger data integration is needed for deeper insights, allowing banks to deliver actionable alerts with relevant solutions and information to attract and retain this vital segment.

The banks that embrace the strategies and technologies necessary to support small businesses and gig workers will thrive in the rapidly changing banking and payments landscape while also contributing to the growth of local economies across the country.

Doug Brown is Chief Product Officer, Digital First Banking for NCR Voyix.