By Leslie Chaffer, VP Product Management
In today’s shifting business climate, millennials are taking ownership of a growing number of small businesses. Known for their tech-savviness and desire for instant gratification across digital channels, this younger generation is driving financial institutions to reshape priorities to meet their heightened digital expectations.
What your community institution may not realize, though, is how different these younger entrepreneurs’ financial priorities are than their older counterparts’. A recent Datos Insights survey found that 44% of millennial-run businesses are likely to switch financial institutions in the next two years — driven largely by the need for more advanced payment options. Real-time payments have emerged as a critical offering to attract and retain this segment, and as such, should be a priority for your institution.
Instant Transfers Bring Flexibility and Speed
Real-time payments facilitate instant or near-instant account-to-account transfer of funds across institutions, allowing recipients to access money immediately. Contrast that with traditional payment methods that may take days to settle, and it’s clear why real-time payments resonate with younger business owners. Also, because these payment systems operate 24/7, businesses get added flexibility and convenience with this payment rail.
In the United States, real-time payment adoption is gaining momentum, driven by initiatives like The Clearing House’s RTP network and the Federal Reserve’s FedNow Service. Currently, more than 900 financial institutions have joined FedNow, and more than 600 have adopted RTP. However, these institutions only represent 65% of total demand deposit accounts in the U.S., leaving a significant portion of the market untapped.
Meet Millennials’ Demand for Real-Time Payments
Business ownership in the U.S. is shifting, ushering in a new, younger group of small business entrepreneurs with different priorities. In particular, millennial-run small businesses are vocal about their need for diverse payment options.
According to Datos Insights, 53% of these businesses want their financial institutions to offer more payment options, 50% are willing to switch institutions for more payment options, and 38% would switch specifically for real-time payment capabilities.
When asked which new digital capabilities they want their financial institution to invest in over the next two years, better real-time payment capabilities topped the list, with more than a third of respondents citing this feature.
Empower Millennials with Real Benefits
Millennial-run businesses are also embracing innovation, often leading the charge in adopting new technologies and payment solutions. As these businesses demand more diverse, immediate payment options, you must step up your offerings to attract and retain this segment. Real-time payment options are particularly appealing because they:
- Promote speed and efficiency. Real-time payments streamline transactions, improve cash flow, and increase operational efficiency. In situations where timing is critical — such as gig economy payouts, off-cycle pay, real estate closings, and emergency payments — real-time payments offer a new level of flexibility for businesses.
- Enhance financial management decisions. With access to real-time data, businesses can make better, more informed decisions about their finances, leading to better overall financial management and strategic planning.
- Provide a competitive advantage. Your institution can demonstrate innovation by offering real-time payment options. For millennial-run businesses, capabilities like instant payments are increasingly table stakes, and institutions who provide them maintain a competitive edge in the rapidly evolving market.
When deciding whether implementing real-time payments should be a priority for your institution, consider that deferral may cause small businesses to look elsewhere for their banking needs — choosing larger banks or other institutions that are currently embracing the technology.
Many community banks and credit unions are not moving fast enough to provide the financial tools businesses need, according to Datos Insights. In fact, 81% of millennial-run businesses indicated they are partnering directly with nonbank fintech companies for a number of key financial services, including faster payments, payroll, invoicing, and money management tools.
If you don’t offer real-time payments, your institution could also lose out on potential revenue. Small businesses are showing a greater willingness to pay for products that save them time, increase convenience, and help them operate more efficiently. A significant number, 73%, are willing to pay for banking products and services that help their business more effectively and accurately manage its finances.
Grow Market Share with Real-Time Payments
To ensure real-time payments are available to your small business account holders, ensure your digital banking solution offers both send and receive real-time payment capabilities through FedNow and/or RTP, catering to both consumers and businesses.
With a commitment to innovative payment options, you show small businesses you are willing to compete directly with the larger banks. Real-time payments not only address the expectations of millennial-run businesses but also position your institution to expand and thrive in a competitive market.
Learn more about millennial-run business priorities in this Datos Insights report, Winning Market Share Among Millennial-Run Small Businesses.
