Real-time payments (aka RTP) have become an increasingly hot topic for bankers as the launch of FedNow, a new instant payment infrastructure established by the Federal Reserve, nears. It will enable financial institutions of every size across the U.S. to provide safe and efficient instant payment services. The service moves from the pilot stage to a full launch in July 2023 and will be rolled out in several phases of functionality.
Sessions on RTP and FedNow at a recent vendor-hosted conference were standing-room-only, filling seats faster than talks on other popular topics including artificial intelligence (AI) and other fintech strategies. When asked for a show of hands, half of the packed room expressed an interest in joining FedNow within the next 12 months, providing more evidence that real-time payments will become an integral part of the payments ecosystem.
Panelists from Q2, The Clearing House, and the Fed shared their views and learnings during the session. They made it abundantly clear that the RTP network and FedNow are not interchangeable, so it may be necessary for financial institutions to tap into various services and platforms.
Here are some other takeaways from the RTP/FedNow panel discussion and conversations with other conference attendees.
Unlimited use cases: Expect banks, retailers, and other entities to find new ways to leverage real-time payments. The most-popular use cases are wallet-based apps like Venmo, payroll-related activities such as earned wage access, and logistics/transportation. Mortgage closings and auto purchases (especially on days and times when FIs are closed) are gaining traction, and the Treasury Department will find ways to innovate with its FedNow usage.
Receive-only leads the way: The Fed estimates that 90% of day-one FedNow users will only receive payments since doing so is easier in terms of risk and implementation. The Fed suggests that participants ease into the send side – perhaps by signing a handful of partners so they can finetune monitoring and gain experience with the process.
Step in slowly: Panelists said it is acceptable to take the time necessary to evaluate the platforms, especially when it comes to sending funds. There are many operational considerations, including education for employees and clients, selecting a gateway service provider, and evaluating cost structures and implementation schedules.
Have conversations now: While due diligence is important, FIs need to start having discussions about real-time payments now. It is important to get out on the forefront in advance of FedNow’s full launch.
Be mindful of fraud: Though panelists said they are seeing very few instances of fraud, they credit issuing institutions with securing the front end of transactions. The Fed representative also noted that FedNow will provide tools on day one to mitigate fraud – with enhancements planned over time.
The Bottom Line
Real-time payments are gaining wholesale acceptance, and will only grow in popularity as more use cases are established. For now, there is significant interest in receiving payments with the number of institutions set to accommodate sending funds expected to increase over time.
FIs need to evaluate FedNow and the RTP network, realizing that they are not interchangeable. Operational considerations should be reviewed now, with an understanding that innovation will accelerate once FedNow comes online. SRM is tracking developments closely and can help you evaluate your options as this game-changing payments structure takes root in the system.
