Just over a year after FedNow launched, more community banks are adopting it, The Clearinghouse’s Real-Time Payments (RTP) or both. Those that have are seeing a growing number of use cases for both consumers and business customers.
“Without a doubt, instant payment capabilities open up a world of possibilities for community banks to innovate and continue to respond to and serve the unique, individual needs of their customers,” says Scott Anchin, ICBA’s vice president, operational risk and payments policy.
Many community banks adopted instant payments based on the promise offered by future use cases that could benefit business customers, Anchin says. Others are waiting for expressed customer demand, solid evidence of a business case or tools enabling these use cases.
Instant payments: where to start
Anchin believes a receive-only implementation is the easiest way to get started. Adding send capabilities brings other considerations around risks to do with liquidity and fraud.
“The good news is there’s significant momentum around continued development of first- and third-party liquidity management and fraud detection and mitigation tools,” he says. “As these continue to come to market, community banks will likely begin to send instant payments in increasing numbers.”
Buffalo, Wyo.-based Buffalo Federal Bank currently offers receive-only capabilities for individuals and businesses on both the FedNow and RTP rails, but in the future, it will also offer send capabilities, says Paul Brunkhorst, president and CEO of the $186 million-asset community bank.
Many banks have opted for the same gradual approach to get the back office in order before putting the service in front of customers.
“As FedNow opens it up to all banks … when the large banks see competition from community banks, it will immediately reduce costs [and] increase access, and the consumers will benefit,” Brunkhorst says. “Community banks should be looking forward to its widespread adoption.”
Busting instant-payments myths
Brunkhorst says some myths need to be nipped in the bud before more customers will adopt FedNow, such as that the payment rail is either a central bank digital currency or a precursor to one. “The Fed needs to be out with PR that banks can leverage, or via the Fed’s own customer outreach programs,” he says.
1st Bank Yuma in Yuma, Ariz., elected to adopt FedNow rather than RTP based on the ease of adoption and low entry cost for the size of the institution, says Ricardo Perez, president and COO. The $620 million-asset community bank partnered with its core provider, FPS Gold, to implement both the receive and send capabilities of FedNow as an early adopter and beta tester.
“This decision was driven by the need to provide a full spectrum of real-time payment services, as those use cases are programmed within our core’s digital platform,” Perez says. “Offering both capabilities ensures that our customers can seamlessly send and receive funds instantly, if the sending or receiving financial institution has implemented FedNow into their ecosystem.”
For now, 1st Bank Yuma’s consumer customers can perform person-to-person payments via FedNow, and future enhancements to FPS Gold’s online banking ecosystem will enable consumers to also transfer funds and pay bills on the rail. Other enhancements include components to help businesses improve cash flow, immediate settlement of invoices and enhanced financial management capabilities.
“Our experience with real-time payments has been overwhelmingly positive,” Perez says. “Being a beta tester and early adopter has allowed us the capabilities to fine-tune our process, enhance our fraud mitigation and reach our customer base.”
Fintech integration partners
Alacriti, a fintech certified to support payment processing for FedNow, RTP, Wires and Visa Direct, has a number of bank clients offering instant payments on FedNow and RTP, says Mark Majeske, senior vice president of faster payments at the Bridgewater, N.J.-based company.
“Even though no one knows where the market is going to land—whether instant payments are going to be more consumer-driven or business-driven and which rail will be more popular with which segment—you never want to be in a position where your customer is going to be dissatisfied if you don’t offer choices to them,” Majeske says.
Alacriti’s clients are starting to build out business applications, and many are also getting an early start on offering the “request for payment” capability, though that won’t likely become mainstream for at least another year, he adds.
Neural Payments in Mason, Ohio, also serves as an integration point for FedNow and RTP, including within a bank’s mobile banking app, says Mick Oppy, cofounder and CEO.
Many of its clients are hesitant to adopt instant payments until they have “a clear line of sight to true revenue,” as well as more comfort that fraud can be prevented, Oppy notes.
“Service providers like ourselves and others need to provide the right kind of risk mitigation tools to increase that comfort level,” he says.
Neural Payments is piloting biometric authentication measures, as well as measures to detect when there are anomalies in how customers typically interact with their institution’s mobile app that could spell fraudulent activity.
“The institutions that are offering instant payments feel like they should offer the ability to service their clients, whose loyalty comes from giving them more optionality,” Oppy says. “To control their risk, institutions might lower their limits or lower the velocity—the number of transactions within a day.”
Anchin believes streamlining the implementation process and bringing costs down would help accelerate adoption. “A universal instant payments directory service would be a significant value-add to the entire instant payments ecosystem,” he says. “An alias-based directory would accelerate service providers’ ability to provide products that enable key use cases. New, directory-enabled products would help drive volume and ultimately help community banks to create or realize a business case.”
