Entering the Era of Instant Payments

On March 15 during the final general session at ICBA LIVE, the Federal Reserve announced that it will launch its much-anticipated FedNow Service in July. With instant payments already a central topic of discussion, this news added to the buzz.

And it came at the right time: FedNow better positions community banks to respond to increasing faster payment demands. In a session during LIVE, the Federal Reserve shared that nearly 80 percent of consumers want faster payments to pay businesses, and nine in 10 businesses expect to be able to initiate and receive faster payments this year (“The FedNow Launch is Only Months Away, Are You Ready?,”).

“The important take away is your customers are interested,” said Erik Van Bramer, senior vice president and head of customer relations, Federal Reserve Financial Services. “They may not be asking the right questions; you may not be asking the right questions. One of the things I can tell you right now is customers prefer to work with their bank on payments, however, if they don’t see those services being offered by their banks, they’re going outside,” he told ICBA LIVE attendees.

Current Market Trends

Today’s volumes from The Clearing House’s (TCH’s) Real Time Payments (RTP) Network, which has been live for more than five years, substantiate those claims. Key use cases, including payroll, wallet cash outs, and business-to-business (B2B) transactions, continue to emerge. TCH revealed at LIVE that RTP now has amassed 130,000 business originators. In December 2022, these organizations spanned a range of vertical markets and use cases, including:

• Fintech – 8.9 million transactions for digital wallet cash outs, on-demand pay, early wage access, and B2B

• Transportation – 1.7 million transactions for payroll and B2B

• Payment processors – 1.2 million transactions for settlements

• Gaming – 1.1 million transactions for wallet cash outs

“What it really shows you is that all of the different kinds of things that might be hot buttons, they’re happening today,” said Scott Miller, vice president, sales and relationship management at TCH. “It’s a positive story to tell.”

The FedNow Journey

And that story translates to increasing opportunity. As community banks plan for what’s next, the Federal Reserve advised taking the following preparatory steps toward a FedNow launch:

1. Determine how the product fits customer and bank needs. What problems does the bank want to solve for customers? For itself? How does that translate to use case and value?

2. Select how to connect. Will the bank tap into FedNow via a FedLine Solutions connection, through a service provider, or both?

3. Plan for the role. Does the bank want to receive first? Send and receive? Utilize request for payment functionality?

4. Consider operational impacts. How will the bank manage 24/7 transactions and associated risk? Which upstream and downstream applications will need addressed?

5. Identify a settlement approach. Will the bank settle payments in a Federal Reserve Bank master account or that of a correspondent?

Once community banks have these questions answered, onboarding begins with a connection to a FedNow Service onboarding manager and overall relationship manager. Those individuals, along with a cross-functional support team, will help banks navigate the stages of the onboarding process: information gathering, configuration set up, access and testing, certification, and go live

“We’re really trying to take the approach of white glove; let’s make this as easy as possible for you,” Van Bramer said. “This is the biggest change in 50 years in payments. It’s a little daunting; it shouldn’t be. We’re here to help you.”

For more information on FedNow, visit fednowexplorer.org or reach out to ICBA Bancard (Bancard@icba.org) for assistance.

Colleen F. Morrison is principal at CFM Communications.