Market Data 
Alternative payments like card-linked installment options, instant payments, and open banking are profoundly reshaping consumer behavior and the overarching payment industry in many global markets. These innovations offer consumers convenience and speed of payment to merchants.
Instant payments networks are credit transfers that instantly move available funds from the sender’s bank account to the receiver’s bank account within seconds. These networks have been especially disruptive in countries such as China, India, and Brazil. These regions have huge adoption rates from merchants and consumers alike and have led to widespread usage of payment methods such as UPI in India and PIX in Brazil.
I recently sat down with Brad Goad, Chief Revenue Officer for Matera, a Brazilian bank tech company that offers instant payment software to large countrywide bank-to-bank networks such as PIX and others. I wanted to find out why instant payment systems are so popular in specific regions globally and whether he believes they will eventually take hold in the US.
Nandan Sheth: Will you explain what instant payments are and how they work?
Brad Goad: Instant payments represent a streamlined transfer of funds, moving money directly from the payer’s account to the payee’s. Compared to traditional card based payment systems or bank-to-bank payments, instant payments represent a much more simplified process. Legacy banking and card transactions rely on batch processing, have greater complexity and slower settlement times while instant payments are finalized in seconds and available 24/7, 365 days a year.
N.S.: What are some of the circumstances in countries such as China, India, and Brazil, which have fostered the greater adoption of instant payments?
B.G.: The countries you mentioned, historically cash-reliant and cautious of credit, have seen a shift towards digital payments. This change was spurred by government mandates and facilitated by the rise of mobile technology, which leapfrogged traditional systems, leading to a revolution in real-time user experiences and widespread data democratization. The adoption of QR codes and advanced barcode technology for secure ID validation has simplified transactions, enabling even unbanked merchants and consumers to quickly embrace digital payments. This has broadened usage across various businesses and consumer groups.
N.S.: So when you look at the US market, is there anything equivalent to these instant payment systems currently?
B.G.: Zelle and PayPal played pivotal roles in advancing digital payments in the US. For instance, Zelle introduced user-friendly features like aliases and directories for bank transfers, and PayPal pioneered the digital wallet concept, facilitating instant peer-to-peer (P2P) transactions. This innovation paved the way for consumer-to-business payments using similar technology, where transactions are instant due to the direct ledger transfer within the same network, unlike traditional bank-to-bank and credit card payments that involve multiple intermediaries and networks, adding complexity and cost. Following PayPal’s lead, platforms like Venmo, Alipay, and Cash App further popularized instant payments within their wallet ecosystems. Zelle, which was developed by Early Warning and supported by major US banks, simplified P2P bank transfers, aligning with instant payment innovations. The common denominator among these platforms is that they leverage modern technology to facilitate immediate transactions, overcoming the limitations of the older banking infrastructure.
N.S.: Do you think instant payments will take off in the US? What factors might influence their adoption or lack thereof?
B.G.: At the moment, the US lags behind international counterparts like Europe’s open banking, India’s UPI, and Brazil’s PIX, primarily due to the entrenched legacy of credit card and ACH systems. These older systems are deeply integrated into American daily life, unlike in other countries that adopted newer technologies and policies more swiftly. One of the key factors affecting the adoption rate in the US is the fact that we have a federal policy which consciously encourages competition as a strategy to mitigate the risk of total system failure. There is also no central authority or unified mandate to migrate to these systems, and a lack of interoperability and standardization.
However, these challenges will be overcome and I do believe that instant payments will take off in the US. Merchants will drive adoption because they have the most to gain from a more streamlined, less cumbersome system. Card networks and issuers are evolving and learning to embrace instant payments as they continue to innovate to drive value. The integration of Open Banking principles essential for instant payments is still unfolding in the US, which is taking a cautious but strategic advancement towards wider adoption.
N.S.: Are instant payment systems good for both merchants and consumers? And if so, what benefits do they bring to both?
B.G.: As you know, instant payments offer much more efficiency in payments processing. The direct effect is that they lower the cost of payments and optimize the cost of funds. A true instant payment system is always on—available 24/7, 365 days a year. More importantly, they are also highly secure and reduce true fraud. They operate within a multi-factor authentication environment, leverage the best encryption, minimize third-party touches, and work within existing financial institutions.
We believe that instant payments offer a long-term opportunity for banks, including card issuers, to enhance their value proposition as an everyday wallet and compete effectively with products like Apple Pay and Google Pay.
Merchants also benefit by saving on the cost of payments and chargebacks because they are leveraging multi-factor authentication and good funds transactions. Consumers ultimately benefit from lower costs and higher security, simply because they aren’t storing personally identifiable information across countless merchants.
N.S.: Tell me about the economic model? These systems cut out intermediaries such as card networks, acquirers, and issuers, which is a big change for these stakeholders, isn’t it?
B.G.: Let me answer that by telling you the pretty remarkable story of PIX in Brazil. As a bit of background, as recently as 2017, 30% of Brazil was unbanked. PIX is managed by the Brazilian Central Bank and operates on an alias-based authorization system, completing transactions within 6 seconds. Initially PIX faced a lot of resistance from banks and merchants when it was launched in November of 2020, but now it handles over 5 billion transactions per month and has become the primary means for consumer-to-business payments. Its QR code payments make up half of its transactions. By the end of 2022, there were 71.5 million new digital banking users, and by July, 2023 over 80% of Brazilians were using PIX. The company has expanded and offers new services like PIX Credit which allow instant credit transactions.
Initially, banks feared a drop in revenue, but now they have been finding new opportunities with financial services and deposits through PIX. Processors still earn transaction fees and card networks are adapting to this shift. The key lessons from PIX show that it’s possible to drive efficiency, reduce costs, expand the total addressable market, foster innovation, and reintegrate the value propositions of legacy players in new ways.
N.S.: Thanks for this enlightening conversation. Empowering consumers with a diverse range of alternative payment options allows them to select the method that best suits their needs. Instant payments should serve as a complement to existing banking services such as credit cards and interest-free installment options as opposed to replacing them entirely. Offering a variety of payment methods enhances both consumer and merchant options since each method serves a distinct purpose. It’s clear that the rise of instant payments represents a huge opportunity to redefine the landscape of financial services and consumer behavior.
Ultimately, the goal is to give consumers the freedom to choose the most appropriate payment method for each transaction, whether that’s immediate payment or spreading the costs through installments to facilitate better financial management.
