The U.S. payments landscape entered a new real-time era with the July launch of the Federal Reserve’s FedNow Service.
The 24/7/365 infrastructure for instant transfers represents the biggest payments modernization in decades. Several months later, however, questions linger about how and when financial institutions should implement its capabilities, and what instant payment products and services will be embraced by their banking customers.
In a recent webinar from The Financial Brand, leaders from the Federal Reserve, payments fintech Tyfone, and the California-based, FedNow-enabled Star One Credit Union, explored considerations and recommendations for banks and credit unions who are looking to adopt FedNow. They delved into practical dimensions like use cases, risk management, technology partnerships and monetization.
The consensus? While adoption exceeds expectations so far, delaying implementation poses real dangers as consumer expectations escalate.
Q: First, how does FedNow fundamentally change the payments landscape?
Eric van Bramer, Federal Reserve Bank of Chicago: FedNow represents a major modernization in U.S. payments. For the first time, funds can move instantly any time of day or night with near-universal reach.
By enabling real-time transfers at scale, FedNow aligns the U.S. with payment systems in many other countries. Decades of reliance solely on batch ACH transfers will cease with FedNow’s launch, ushering in an era of always-on-money movement.
Q: What has adoption and industry enthusiasm been like so far?
Van Bramer: We’re thrilled with the progress exceeding expectations. As of October 2023, 177 financial institutions are live with hundreds more in the active onboarding pipeline.
Importantly, we’re seeing a strong diversity of partners — community banks, credit unions, and major banks are all represented. This mix is critical because payments concentrate heavily among big corporate senders. To maximize network value, ubiquitous participation is essential.
“As of October 2023, 177 financial institutions are live with hundreds more in the active onboarding pipeline.”
— Eric Van Bramer, Federal Reserve Bank of Chicago
Q: For institutions not prioritizing FedNow yet, what obstacles are slowing adoption?
Van Bramer: With so many competing priorities, some institutions are still evaluating when and how to connect. Concerns like managing unfamiliar 24/7 settlement flows, planning for new liquidity requirements, building the business case given the cost of technology investment, and uncertainty around use cases, are all top of mind.
But delay risks falling behind on innovation capabilities as consumer expectations for faster digital money movement continue escalating. My advice is to engage as early as feasible, even if only receiving initially. Following prudent processes will smooth assimilation into business as usual down the road.
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How to Test The Instant Payments Waters and Gauge Demand
Q: What is the simplest way for reluctant institutions to initiate FedNow adoption?
Marcell King, Tyfone: We recommend beginning simply by receiving FedNow payments first. This allows the institution to test demand and explore use cases while requiring minimal initial development work.
Once real-time payment flows are established, more complex sending capabilities can be layered on. This staged approach eases the transition rather than tackling everything at once.
Van Bramer: Absolutely — just being positioned to receive payments provides learning opportunities and community benefits without major risks or disruptions. Starting with the basics creates a pathway towards more advanced implementations down the line. Don’t let uncertainty paralyze progress.
Q: How are consumers and businesses driving the need for faster payments?
Minal Gupta, Star One Credit Union: In Silicon Valley, our consumers expect speed — they want to move money on their own terms. Since launching FedNow, we’ve seen strong organic member adoption for P2P use cases.
Van Bramer: On the corporate side, there’s a growing demand for real-time capabilities to control cash flow until the last second before payments. Migrating inefficient check and ACH volumes to instant rails delivers tangible benefits.
Instant Payments Powering Any Service That Benefits from Speed
Q: What FedNow-powered offerings unlock the most value?
King: Enabling real-time push payments creates huge opportunities around revenue generation, improved services, and increased efficiency. And use cases like earned wage access, business-to-business transfers, and loan disbursement deliver vastly superior speed and convenience compared to legacy batch ACH.
Fraud prevention also improves by enabling much faster recalls of erroneous or illegal transfers before downstream dispersal into multiple accounts.
Gupta: For us, FedNow facilitated new real-time product offerings like small-dollar loans. Instant disbursement and repayment unlock innovation that would’ve been non-starters on rigid legacy rails.
“In Silicon Valley, our consumers expect speed — they want to move money on their own terms.”
— Minal Gupta, Star One CU
Q: How crucial are technology partnerships for smooth implementation?
Gupta: Partnerships are absolutely critical, especially for smaller institutions like ours, community banks and credit unions with constrained internal resources.
Operationally, we’ve already identified huge efficiencies in settlement and reconciliation. We haven’t had to add staff despite transaction volumes increasing.
Q: What fraud and risk management concerns arise with instant payments?
King: With everything accelerated, mitigating fraud and mistakes becomes even more critical. Solutions like our Negative List capability that cross-reference past suspicious activity are key. We also integrated third-party intelligence like IDology and LexisNexis to perform robust real-time identity verification and watchlist screening on senders and recipients before approving transfers.
Q: What use cases and revenue opportunities most excite you?
Van Bramer: I’m especially enthusiastic about “Request for Payment.” It keeps the payor in control but migrates invoicing to instant digital experiences. Companies no longer float invoices 30 days or more.
Loan disbursement also holds promise. Applying and receiving funds in seconds rather than days would be transformative. Of course, prudent underwriting remains imperative, but possibilities expand to rethink processes from the ground up.
King: We’re also keeping an eye on emerging options around earned wage access. There’s strong value in giving consumers the flexibility to access wages instantly before formal payday. That’s a huge behavioral shift from legacy pay cycles.
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Demand From Business and Consumers is Already Robust
Q: What final advice would you offer financial institutions considering FedNow?
Gupta: The biggest lesson we’ve learned is the demand is already here. Our consumers love the control and the convenience. So, the risk lies not in adopting FedNow but in delaying adoption.
Van Bramer: This journey requires balancing prudent risk management with openness to re-examine legacy practices. Leverage pilot programs to build knowledge and then scale successes.
FedNow’s reach will only be maximized through ubiquitous participation. So, I urge institutions to start mapping strategic roadmaps now, even if only receiving them initially. Harnessing this capability early will provide competitive advantages later as consumer expectations escalate.
For a longer version of this conversation, check out the full webinar, “FedNow – To Send or Not to Send? There Really Is No Question!” This Q&A has been edited and condensed for clarity.
About the author:
Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.