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  • Writer's pictureJohn San Filippo

Industry Leaders Forum: FedNow and Faster Payments, Part 1

By John San Filippo

Finopotamus has assembled a panel of experts in a recurring series, The Industry Leaders Forum (ILF). Each month, we ask the panel a broad technology question and share their informative responses. Respondents are presented in alphabetical order by first name.

Part 1 includes responses from:

For August 2023, Finopotamus asked the ILF panel:

The launch of FedNow has put faster, cheaper payments top of mind for everyone. There's a potential to disrupt virtually every area that involves money movement. What do you think will be the short and long-term effects of FedNow and technologies like it?

Al Pascual, Senior Principal and Enterprise Risk Solutions Lead, TransUnion

The fast, real-time payments promised by FedNow will undoubtedly benefit financial consumers. But there will be another group of unintended beneficiaries. The chatter of bad actors has been lighting up the Dark Web and criminal forums with schemes to exploit instant access to high-dollar transactions. They will certainly target early adopter financial institutions and use them as a training ground for the time when FedNow is more widely utilized.

It's clear that the ability to instantly transfer hundreds of thousands of dollars will create meaningful risk for financial institutions and irresistible opportunities for criminals. My hope is that after the growing pains that the industry experienced with (person-to-person) P2P payments, many more bankers will be willing to prioritize fraud risk management from the outset. It’s my estimation most institutions do not want a repeat of the P2P scrutiny from consumers, regulators, and the media all over again.

With a pragmatic expectation that FedNow will inspire a new wave of account takeovers that will ultimately broadly affect financial institutions, there’s an opportunity within the challenge for the fraud community to come together. Early-adopting financial institutions can help chart a path for others that follow in their FedNow footsteps. By engaging fraud professionals early to socialize and share key learnings, and providing constructive education to customers, over the near-and long-term, they will amass best practices that help other institutions implement FedNow with greater confidence and fewer risks.

Amber Harsin, CEO, Prodigy

Real-time payments, like FedNow, promise tremendous benefits for both individuals and businesses. They’re particularly important for families on tight budgets, who might be making their bill payments in the 11th hour. Real-time ACH will empower households to manage their liquidity as they need. That said, credit unions and other debt collectors could see a decrease in their fee income because of it. Good for the consumer, and I believe, a positive for not-for-profit credit unions founded to promote thrift among members. Frankly, other countries have been doing this for some time, so it’s kind of embarrassing the U.S. is so far behind the curve. Catching up means exploring new ways to generate revenue or manage expenses that allow credit unions to continue serving their members.

The less-expensive, instant, irrevocable payments also present a challenge for credit unions and members in their fight against fraud. The speed of settlement will be appealing to bad actors and members could be taken to the cleaners pretty fast. While financial institutions can opt-in as receive-only institutions to mitigate that risk, members are going to flee elsewhere if they cannot also send funds; that’s kind of the point.

We can’t act like this is brand new and we didn’t see it coming. The RTP Network has been operational since 2017, with hundreds of institutions firing transactions over its lines. FedNow has been touted for years, too, so none of this should be new to credit union leaders.

On the other hand, businesses, including credit unions, will be better able to manage capital as they’re making payments for a variety of accounts payables, like payroll for starters, and do it for less. These instant payments can really help level the playing field for smaller credit unions and banks.

Of course, RTPs have drawbacks, too. Credit unions that opt to participate might want to invest in additional technology and/or staff to monitor these 24/7 transactions. Staff need to understand the payment systems and the technology behind it to select good partners and make smart integration choices. Your systems have to be ready. Can your core support FedNow and what user experience can members expect via digital channels? These are important factors to retain members and attract those that are accustomed to and love the Venmo and CashApp-type experience. It also calls for reconsideration of your liquidity management; conveniently, FedNow has a liquidity management option built right into it.

In today’s always-on world, consumers expect no less from their financial institutions. Credit unions must be ready to maintain relevance by offering the convenience and power RTP provides for their members. Even if that means we are pivoting to teams with more technical expertise than we have needed in the past.

Ashish Garg, Co-Founder and CEO, Eltropy

At Eltropy, we're excited to be at the forefront of leveraging such advancements that empower credit unions in their digital conversations. We see these changes as opportunities to redefine member interactions and engagement. By embracing real-time capabilities, credit unions can offer their members more tailored, responsive experiences, thereby strengthening relationships and trust. It's truly an exciting time to be part of an industry that's evolving so rapidly.

Baron Conway, SVP Client Relations, TruStage Digital Storefront (formerly CuneXus)

From the taming of the first horse, to the creation of the wheel and now FedNow, one could argue that human history is all about getting there faster. The past few decades of the internet, digitization and globalization have expedited the need and ability to connect A and B together securely and with speed. As we talk about FedNow and other payments services like RTP, Crypto, EPI, PayPal and Venmo, let's remember that money is merely a medium of exchange; what’s important is having money and the ability to transfer money to acquire and use the products and services we need to live our lives. With this in mind, the creation of FedNow comes as no surprise.

While I think it will be faster than many assume, it will probably take some time for FedNow’s capabilities to get fully integrated across financial institutions and companies. The main short-term benefit is going to be that it will push all other financial services providers to innovate and offer smarter and faster services.

In the long-term, the impact of FedNow is going to be profound, and will result in a transformative range of funding, buying, and shopping experiences. It will likely also spur a host of services from reputable financial institutions and startups aimed at removing same-day lenders from the market and reinventing financial inclusion. Lastly, amid the rise of decentralized finance and private payment services, a faster payments rail built by a government institution provides an additional level of security. As a result, FedNow will likely become the backbone of an array of existing and, more importantly, new services that will transform our lives.

Barry Kirby, CRO and Co-Founder of Union Credit

FedNow will set a new standard for consumer expectations regarding their finances. The “set it and forget it” mentality is well underway, and through FedNow, members can instantly pay bills and receive paychecks upon issuance. Long gone are the days of waiting for funds to become available, checks to clear, and money movement being affected by holidays and unforeseen interruptions of service.

In the long term, these seamless experiences will be expected across all financial interactions. We’ve already seen a shift to e-commerce for shopping needs and a high demand for convenient, firm credit offers embedded within consumers’ everyday buying and borrowing experiences. The future of credit unions will be powered by their ability to meet this demand.

Chris Cox, COO, Apiture

The recent launch of FedNow gives U.S. financial institutions a new way to deliver real-time payments to consumers and businesses. Among the use cases for this quick, cost-effective payment option are sending emergency disbursements, paying gig workers, and making bill payments on the day they are due.

Though FedNow is likely to lead to a modest boost of real-time transactions in the short term, adoption to date has been low. In fact, although The Clearing House’s RTP network launched in 2017, real-time represented just over 1% of all payments in this country last year. Instead, existing, well-established payment rails like wires and ACH payments appear to be adequately meeting demand for high-value, same day payments, while Zelle or other P2P options like Neural Payments support a growing number lower-value transactions.

Given limited demand — and the absence of a government mandate, as has been the case in some countries where real-time has proliferated — most community institutions we work with are taking their time before committing to FedNow. Supporting a new payment type comes with significant operational implications, such as the need for staff to support 24/7/365 payments. Other challenges also remain, such as the interoperability of FedNow with RTP and the need for end users to understand and trust real-time payment rails. Though many are taking a wait-and-see approach, others plan to enable receipt of real-time payments as a first step before expanding to allow accountholders to send these irrevocable payments.

The FedNow launch represents an important milestone for the U.S. payments ecosystem, one that enables financial institutions of all sizes to provide their users with an efficient, low cost, instant payment option from within their trusted financial institution’s digital channels. Over time, new, innovative use cases are likely to emerge that continue to drive demand. As real time takes hold, use of other payment types, particularly cash and checks, are likely to see the greatest decline as users favor a more efficient, secure payment process.


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