U.S. consumers want fast, convenient payment methods, and younger generations are adopting nonbank providers to meet their expectations. A new study from Federal Reserve Financial Services (PDF) found that 78% of consumers chose faster payments as a preferred option — and half held balances at nonbank providers.
Instant payments specifically have caught the attention of consumers, and they are looking to financial institutions to provide them. According to the survey (PDF), Around 6 in 10 consumers state that it’s important for their financial institution to offer instant payments, with 78% of Gen Z in particular calling it important, a 14% increase year over year.
“When nearly 80 percent of Gen Z says instant payments are important, they are defining their expectation for payments,” said Mark Gould, chief payments executive for Federal Reserve Financial Services. “When financial institutions add options like instant payments, they aren’t just keeping up with technology; they are keeping the next generation of customers.”
Growing Interest in Instant Payments Comes From Simple, Fast, Convenient Experiences
The survey (PDF) reveals that benefits like 24x7x365 functionality (42%), simplified sending (30%), and immediate notifications (27%) are among the top reasons why consumers are adopting instant payments. Added benefits, including app-based convenience (26%) and simplicity of use (25%), are also fueling uptake.
Financial institutions are offering instant payment services as part of their business strategy to remain competitive, keep deposits in-house and maintain primary customer relationships. That access to instant translates to satisfaction: Notably, consumers using instant payments reported 8% greater satisfaction with their primary financial institution.
Digital and Instant Payments Drive Improved Value to Younger Consumers, who see Them as Integral to Their Lifestyles
Though payment method preference continues to trend towards digital across the board, interest in digital and faster payments is most pronounced among younger consumers. Key findings from the survey include:
- 80% of Gen Z and 78% of millennials use digital wallets, compared to 58% of consumers overall.
- Furthermore, 10% of Gen Z and 9% of millennials are using instant payments, relative to 5% overall.
Digital wallets and instant payments are becoming more popular because they can resolve common payment pain points. This is particularly true among younger users: Millennials and Gen Z specifically were most concerned with slow payment speeds (30% and 28% cited it as a top challenge, respectively) and lack of automation (14 and 10%, respectively), compared to older consumers who worry more about security.
New Instant Payment use Cases can Drive Satisfaction
Emerging payment methods, and instant payments in particular, are opening the door to new use cases that provide consumers with more options to manage their finances and improve payment outcomes. The survey shows that:
- Around 70% of consumers prioritize person-to-business payments, such as last-minute bill pay and ecommerce.
- Account-to-account and person-to-person use cases (65%), including paying friends/family or transferring funds from one bank account to another, are also high priorities for instant payments.
Other use cases that align with generational payment and banking preferences are also gaining interest. For example, younger generations, which have higher rates of wallet use, accordingly, report higher interest in using instant payments for wallet funding and defunding. They also prefer instant payments for payroll and earned wage access.
Because these types of instant payment use cases could be particularly attractive to both users who want instant payments and those who are storing balances outside of banks, offering them could also help financial institutions maintain consumer deposits.
Next-Generation Banking may Propel Further Digital Growth
Interest in new payment methods accompanies a broader shift in the banking landscape. Gen Z and millennials bank differently than older consumers:
- Just under two-thirds (63%) of consumers under age 27 prefer a traditional bank, compared to nearly all those aged 60+.
- Approximately one-quarter of Gen Z and one-third of millennials are actively using two or more financial institutions to meet their current financial needs.
Younger consumers’ openness to nontraditional providers and willingness to hold deposits outside of their bank could increase the cost of deposits for financial institutions, creating an effect that could make it harder for them to sell additional products in the future. As the younger generation gains spending power, ensuring they can access the services they demand — like instant payments and seamless experiences — will be critical to maintaining and strengthening banking relationships.
Learn More
To get more details on the key benefits driving faster and instant payment adoption and to understand other trends in the consumer payment space, read the full consumer survey (PDF).
This survey was conducted by Federal Reserve Financial Services (FRFS). FRFS provides payment services and seeks to foster the stability, integrity and efficiency of the nation’s monetary, financial and payment systems. It offers a comprehensive suite of payment and information services offered to financial institutions. FRFS provides an instant payment service to financial institutions known as the FedNow® Service, and thus the survey, and the statements and findings contained in this summary, are not independent academic research.
For more information about instant payments and the FedNow Service, visit FedNow Explorer (Off-site).