Instant payments grow the impact of digital wallets
The Innovation Spotlight series explores use cases that are changing the way businesses and consumers make payments. This edition covers the benefits of the FedNow® Service for digital wallet providers and end users, featuring insights from Nuvei (Off-site), a gateway provider that enables pay-ins and payouts from digital wallets, and Trustly (Off-site), a payments provider that specializes in pay-by-bank transfers and merchant payments.
In today's digital economy, consumers and businesses demand immediate access to their funds and the ability to move money seamlessly. According to recent Federal Reserve Financial Services surveys (Off-site), 58% of consumers reported using digital wallets to meet their needs for fast, flexible payments.
Despite their prevalence as a convenient payment option, digital wallets’ functionality can be undercut by payment rails that take time to clear and settle, especially when consumers want to move funds into or out of wallets. Any lag in making wallet funds available can lead to cash flow challenges and a frustrating experience for digital wallet users.
For Laura Miller, chief revenue officer and global head of e-commerce at Nuvei, solving for this delay is a priority. “Digital wallets are only as powerful as the infrastructure behind them,” Miller said. “These wallets are quickly becoming a core payment option with strong demand, so reducing friction while optimizing the speed and availability of funds is paramount. That’s where the FedNow Service comes in.”
By enabling instant transfers, the FedNow Service allows digital wallet providers to offer immediate access to funds, boost user satisfaction and drive user growth and engagement with their digital wallet products and services. The FedNow Service enables instant payments through participating financial institutions and organizations, around the clock, every day of the year.
Instant payments maximize access to funds
A wide range of digital wallet use cases are poised to have greater impact for consumers with the addition of instant payments, including wallet-to-wallet and wallet-to-account transfers, consumer-to-business payments and on-demand payouts for gig workers.
Research shows (Off-site) that slow speed of funds is a top consumer pain point, and instant transfers are a top use case. Because FedNow Service payments settle in seconds, funds transferred via the FedNow Service from a digital wallet are available to use immediately.
Users are drawn to digital wallet platforms for their convenience and flexibility according to Moa Agrell, head of banking relations for Trustly. And the seamlessness of instant payments is a natural fit for tech-savvy wallet users. “The user experience of these platforms is crucial, and instant payments help these transactions feel consistent, seamless and trusted,” Agrell said. “With an instant payment, our customers get an immediate notification when the funds are received, and they can use those funds right away.”
Here is one example of how the FedNow Service can enable consumers to instantly defund their wallet:
When a user initiates a transfer from their digital wallet to a bank account, the process is seamless and immediate. The wallet provider, connected to the FedNow Service through their financial institution partners, triggers an instant transfer. The payment clears and settles in real time, and the user has access to the funds right away.
- Josh decides to cash out the balance in his digital wallet to his bank account so that he has the funds to pay his utility bill.
- He selects the bank account connected to his wallet and chooses the value of the balance he wants to transfer.
- The financial institution supporting the digital wallet triggers an immediate transfer of funds to the bank account selected by Josh.
- The FedNow Service clears and settles the payment instantly.
- Josh can access the funds immediately and pay his utility bill. The quick, convenient, and satisfying method makes Josh more willing to fund his wallet in the future, knowing he can easily access and move this money as needed.
Instant transfers boost customer satisfaction
The ability to use funds immediately offers end users unprecedented control and flexibility over their finances. With the FedNow Service, enabled users can defund their wallets instantly, view real-time balance updates, avoid potential overdraft fees and precisely time money movement. This immediacy enhances the overall user experience and builds trust in digital wallet services while taking full advantage of these emerging technologies.
In addition to increased user engagement and loyalty, offering instant transfers can be a significant competitive differentiator, attracting and retaining customers who prioritize payment speed and flexibility.
For Trustly, offering instant payments even brought customers back to their services: "We’ve offered instant payments for years,” Agrell said, “and right away we saw not only high consumer usage but also that, over time, consumers who left Trustly came back to take advantage of the instant capabilities. We’ve received nothing but positive feedback about instant payments, and adding the FedNow Service to our instant options is going to enable us to unlock an even wider range of possibilities.”
A faster payments future with digital wallets
Instant payments can help digital wallets become increasingly embedded, offer more control, enhance flexibility and provide a quick, reliable experience for users.
As digital wallet providers add instant payments to their features and functionality, Nuvei’s Miller said the potential for critical benefits and innovative digital wallet solutions is also set to expand. Key opportunities could include:
- Seamless content monetization for social media influencers
- Embedded finance solutions, including insurance and lending payouts
- Programmable wallets with smart contract capabilities
“We can’t ignore that there’s a global trend toward instant payments and real-time infrastructure for both our customers’ benefit and our own,” Miller said. “The time to be thinking about instant payments across the industry is yesterday.”
With the FedNow Service, digital wallet providers can offer speed, convenience and flexibility for users while unlocking innovative new features and functionalities that grow their own services. How will your organization leverage the FedNow Service to meet the needs of your customers or members?
The Innovation Spotlight series demonstrates the ways financial institutions, certified service providers and ecosystem providers are driving innovation with the FedNow Service. To learn more about innovative FedNow Service use cases, read our previous Innovation Spotlight articles.