Growing employee demand for being paid instantly rather than biweekly ― led by today’s gig economy ― is soon expected to spill over into more traditional employers’ payroll systems.

That was the consensus among a panel of payments and research executives speaking about the opportunities for instant payments at the Money 20/20 conference in Las Vegas this week.

The gig economy has helped lay the groundwork for instant payments, Dayna Ford, senior director for digital commerce payments at research and consulting firm Gartner, said at the conference. “If you think about it, it’s right in the name ― a gig economy worker is someone who gets paid by the gig. They’re not expecting to get paid in a traditional two-week paycheck-type cycle,” Ford said. “There’s more of a need to get those funds to them.”

Ford gave an example of ride-share services like Uber and Lyft, pointing out that each driver operates as a seller in their respective app’s marketplace. Upon completing a ride, the driver can request an instant payment, which typically is pushed to a debit card.

“They can go to a gas station and pay for fuel in just moments, or minutes later,” Ford said. “So that’s a critical difference for them.”

Another use case for instant payments is small businesses that run websites and need to process credit card and other transactions. “They want access to those funds as quickly as possible as well, and so the digital commerce payment vendors are providing that access to them to be able to hold those funds down in real time as well, typically to a debit card,” Ford explained.

The U.S. government is stepping in to make instant payments more seamless transactions among financial institutions. The Federal Reserve’s FedNow Service is expected to begin testing in January and is slated for full launch in 2023. The Fed last week launched tools to educate and prepare financial institutions for instant payments services that will allow businesses and individuals to send and receive funds at any time of day.

Recruitment and financial well-being

Instant payments may have much broader applicability in the workforce at large, suggested Kristin Walle, senior vice president of global payments and compliance at payroll services and human resources giant ADP.

“What we see at ADP is employees don’t want to wait for the traditional weekly, biweekly or monthly payrolls cycle to get paid ― they want to be paid immediately. Employers want to provide their employees with that flexibility,” Walle said. “So instant payments are really emerging as that critical capability for payroll.”

Research from ADP found that 60% of employees said they would take a job if they had more flexibility to select on-demand payment, making instant payment a possible recruiting tool for employers, Walle said.

Instant payments could even play a role in employee well-being and productivity. Walle also noted from the same research that 63% of workers said their financial stress has increased since the start of the pandemic.

“We’re very focused on the mental health of our employees; it’s such a big issue,” she said. “When we think about workers and recruiting of workers, and retaining workers, and being able to keep them focused on work and productive … being able to take the financial issues off the table is very, very helpful.”

Broader use cases

Traditional, biweekly payroll will become “a relic of the past” as more employers offer instant payments, said Jessica Cheney, vice president of product management and strategic solutions at payment automation firm Bottomline Technologies. The applicability of instant payroll services “goes way beyond just gig economy workers and small business owners,” she added, pointing to a survey from PayActiv that found 70% of workers feel some type of financial stress, and 50% said that financial stress is impacting their performance at work.

“It also leaves these people open to vulnerability for high interest rate payday lending programs,” Cheney said. “It’s costing them lots of money in overdraft fees and late charges. So, the instant receipt of funds and immediate spending availability really could have a huge boost to these employees and potentially increase their productivity.”

What are good candidates for instant payments?

Beyond employee payments and payroll, any type of business-to-individual payment, such as rewards payments, refunds or rebates, Gartner’s Ford said, adding that “Just business-to-business payments is a huge opportunity.”

About 40% of U.S. B2B payments are made by paper checks, making it the most common form of payment, and eight out of 10 U.S. businesses still make at least some of their payments by paper checks, leaving B2B payments ripe for innovation.