The Quest for Instant Payments

Today’s transfers are built on yesterday’s technology

In today’s fast-paced world, consumers expect everything in an instant. Advancements such as instant messaging, same-day delivery, and on-demand ride hailing have sped up the time it takes to do almost everything. One category that has hardly sped up, however, is money transfers.

Money transfer technology in the United States is antiquated. While almost all other forms of sending and processing information have been radically revolutionized by the internet, moving money has stayed relatively the same since the advent of the Automated Clearing House (ACH) in 1972. 

According to NACHA, the governing body of the ACH network, over $76 trillion of payments flowed through ACH in 2022. Only about 2% of that volume, however, settled at its destination on the same day. Same day settlement, which is the fastest settlement speed the 50-year-old network can support, may still take hours to deliver its payload to the final destination.

This constraint is a speed bump for platforms that necessitate account funding for their customers to use their product, such as stock brokerages, neobanks, and sportsbooks. Customers must fund their accounts before they can use these products, but if they are stuck using standard ACH, it could be days before the money arrives. By that time, the customer might have missed the stock trade or lost out on the sports bet that brought them to the platform in the first place, leaving them dissatisfied, disinterested, and unlikely to return. 

Speeding up ACH transfers might sound like the obvious solution, but most ACH transfers are actually slow on purpose. While the ACH network does have some technical limitations that prevent truly instant transfers, the main reason for the slowdown is to prevent fraud. By artificially slowing down transfers, there is a greater opportunity to catch bad actors before they can run off with the money. 

And of course, the ACH network gets to take nights, weekends, and holidays off, often extending the transfer window by several days. 

An entire industry is trying to solve this problem

ACH has worked well enough for so long that it has reached ubiquity in the US and has historically scared challengers away. Now, the US fintech industry is conducting a grand experiment to see if modern payment rails can replace the incumbent network built on technology from half a century ago.

Various fintech solutions are rising to the occasion. Zelle, backed by a consortium of the nation’s largest banks, is one solution for sending instant payments. RTP is another bank-backed technology, and FedNow from the Federal Reserve just launched in Summer 2023. Unlike Paypal, Venmo, and Cash App, which are non-bank closed-loop peer-to-peer solutions, these emergent rails strive to provide payments that are not only instant but also interbank. 

Zelle, RTP, and FedNow are not without limitations. These payment methods are push-only, making them difficult to implement as account funding solutions for consumer applications. And all of these solutions will require banks to adopt and implement them successfully. Zelle is accepted at 1,700 financial institutions and RTP at almost 300, which is notable adoption but a far cry from universal coverage.

While these payment rails open the door to faster payments, they also open the door to faster fraud. Zelle users have been particularly affected by scams, with the sponsoring banks sometimes letting their users hang out to dry. FedNow launched with some risk-prevention tools, but their effectiveness cannot yet be measured. 

Interestingly, the card networks have also entered the instant transfer game. Afterall, their core competency of processing credit and debit card transactions is essentially an instant money transfer by a different name. Visa Direct and Mastercard Send can transfer money between any two debit cards in real time. These solutions do not require the consumer to know their account and routing numbers, which has always been an awkward user experience for money transfers. This advantage, however, could also be a disadvantage if the source or destination are not debit card enabled. It is also worth noting that at the end of the day, these technologies from Visa and Mastercard are ultimately built on top of some of the other payment rails discussed here.

The ultimate solution is an orchestration of networks

With each network having their own advantages and disadvantages, it is unlikely that there will be a winner-takes-all scenario for instant money transfers. With global payments volume growing as rapidly as it is, it is for the best that there are so many networks to carry out money movement. The ultimate implementation for consumer use cases will likely not take the form of sending money over just one of these networks. Rather, most implementations will use a solution that orchestrates pulling money from a source over one network and pushing it to the destination over another network, all the while wrapping the transaction in value-added services like fraud prevention. 

That solution is what we are building at Astra. We realized that consumer platforms need instant account funding, disbursements, and payouts, but today’s payment rails are not equipped to power those solutions on their own. Our simple API automatically binds the relevant payment rails together for your use case while we handle all the settlement mechanics, FBO accounts, fraud prevention, and chargeback management in the background. You can read more about our solution in our docs or play around in our sandbox.