Free Instant Payments Still Need a Revenue Model

Instant payments may appear free to the person sending money, but someone must pay to keep funds moving continuously. India's new instant payment system, which will begin on October 15th, will charge a 0.4% merchant discount rate (MDR) on UPI merchant payments exceeding 2,000 rupees ($20). Currently, person-to-person transactions remain free, as do smaller merchant-to-merchant payments and payments received by small merchants.

India's government projects that 96% of person-to-merchant transactions will be unaffected by the new MDR. The government estimates a total of 24 billion UPI transactions occurred in September 2023.

Other instant payment systems have implemented different funding models. In the United States, the Federal Reserve charges participating institutions for sending payments through the FedNow® Service. The fee schedule for 2026 sets an originated customer credit transfer at 4.5 cents, a request for payment at 1 cent, and a $25 monthly participation fee, which is set to zero in 2026.

Financial institutions pay no network fee to receive an RTP transaction, while PYMNTS Intelligence research indicates that 76% of financial institutions already provide RTP network access, and 40% have enabled FedNow. However, concerns about legacy technology, integration, liquidity, round-the-clock operations, and payment volume remain significant obstacles.

Brazil offers another model through its Pix rules, which generally do not charge individuals for sending Pix transfers or making purchases. Businesses, however, may be charged for sending and receiving funds and related services. Banco Central do Brasil charges participants to recover the costs of operating the SPI settlement system and DICT directory on a full-cost-recovery, not-for-profit basis.

Payment service providers on either side of a Pix transaction cannot charge each other. The Pix structure has led to the adoption of the system, with over 150 million users as of July 2023, representing approximately 70% of Brazil's population.

Government subsidies, network charges, and merchant acceptance fees are all potential sources of revenue for instant payment systems. However, consumer willingness to pay for instant access depends on the urgency of their needs. According to PYMNTS Intelligence research, 49% of consumers who receive instant payouts typically pay a fee, while 72% of those relying on instant disbursements for core income pay a fee.

Urgency significantly impacts the economics of instant payments, with 61% of Generation Z recipients willing to pay for instant access within 30 minutes, while 65% would be more likely to do business with a sender offering free instant payouts. When urgency disappears, so does much of the willingness to pay for instant payments.