How to Implement a Successful Instant Payments Program
The playbook for optimizing costs for scale
There are many benefits to adding instant payments to your application. Faster funding means a better user experience that drives more money into your ecosystem quickly and easily while also reducing customer churn.
When instant payments are transferred over the card networks, they incur network and interchange fees. Using this guide, you can optimize your instant payments to keep those fees low and your margins high. Astra has built this strategy from our experience of processing over half a million instant transactions over the card networks.
- Set a transaction minimum: interchange and network fees have fixed costs which make small transactions relatively expensive. By setting a minimum transaction size of $50, for example, you can benefit from economies of scale.
- Apply fees to smaller transactions: instant transfers are a premium service to your customers, and they may be willing to pay for that premium. Adding a 1.5% fee to transfers under $100 can help subsidize the cost of instant transfers without discouraging users.
- Incentivize larger transfers: keeping larger transfers free while charging for smaller transfers is one way to encourage larger, relatively cheaper transactions. Offering a number of free larger transfers per user per month (e.g. five free transfers over $250) is another way to encourage larger transfers, keep costs relatively lower, and bring more money into your ecosystem.
- Implement instant withdrawals: there will always be customers who will have to take money out of your ecosystem. You can offer them premium instant withdrawals to their external account for a small fee (1.5% is typical). These fees might even generate a profit stream for your business or at least subsidize your overall transfer cost.
While tempting, we have seen the following strategies have negative effects on an instant payments program:
- Do not apply fees to all transactions: a blanket fee on all transactions will discourage overall use and will not provide your ecosystem with the benefits of instant payments.
- Do not block larger transactions: all else equal, larger transactions are relatively cheaper than smaller transactions. Blocking larger transactions might have the opposite effect of what is intended, raising relative costs.
Another relevant topic for instant payments is the difference between regulated and unregulated payments. Certain unregulated debit card issuers (such as smaller banks) are allowed to earn more interchange than other regulated issuers (mostly larger banks), which can make processing unregulated payments more expensive. In general, 25%-35% of debit payments are unregulated, and we expect most instant payment programs to fall within that ratio.
Due to merchant acceptance rules, it is not allowable to block or limit unregulated debit card payments because of the interchange category – all payments must be accepted equally. Failure to comply with these rules may result in limitation or loss of service.