Free Instant Payments Still Need a Revenue Model

AI summary of the source article

Instant payment rails rely on varied economics to fund round-the-clock operations. India's UPI is implementing a 0.4% merchant discount rate on select transactions over 2,000 rupees to fund banks and providers, while keeping person-to-person transfers free. In the U.S., both FedNow and RTP charge financial institutions 4.5 cents for originated credit transfers and 1 cent for payment requests. Meanwhile, Brazil's Pix recoups costs on a not-for-profit basis by allowing institutions to charge businesses while keeping individual transactions generally free. Beyond network charges, financial institutions face integration and legacy modernization expenses, with consumer willingness to pay often dictated by urgency.

Why it matters

Instant payments require sustainable revenue streams to offset network infrastructure fees and heavy bank modernization costs across legacy systems, liquidity management, and fraud detection.

Key facts

• India is applying a 0.4% merchant discount rate to specified UPI merchant payments over 2,000 rupees starting Oct. 15.
• The FedNow Service and RTP network both charge participating institutions 4.5 cents to originate a customer credit transfer and 1 cent for a request for payment.
• A survey found 52% of financial institutions cite legacy technology as a major modernization obstacle when implementing real-time payments.