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 3 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?
Jon Budd, CEO, Juniper Payments, a PSCU Company
The introduction of the FedNow service marks another significant milestone – following the launch of the RTP by The Clearing House – in modernizing the U.S. payments landscape and accelerating the adoption of instant payments. These instant payments networks revolutionize the speed and convenience of transactions by allowing individuals and businesses to send and receive funds in real-time, 24/7/365, through participating financial institutions (FIs). The integration of FedNow not only bridges the gap between our current payments infrastructure and consumers’ evolving expectations, but also promises to reshape the future of both the industry and money movement.
The short-term effects of this new rail will be felt by consumers and businesses alike as more FIs roll out FedNow-enabled instant payments offerings with practical, everyday applications. For example, one of the most immediate use cases is person-to-person (P2P) transactions, where the desire for swift, frictionless exchanges is undeniable. The PSCU 2022 Eye on Payments study underscores this trend, finding that 59% of respondents use digital payment methods such as CashApp, Venmo and Zelle at least periodically. With the adoption of enhanced instant payments technologies, credit unions and other FIs are well-positioned to meet this immediate and pre-existing consumer demand through faster payments offerings.
The long-term implications of FedNow will go far beyond everyday use cases like splitting the cost of a meal between friends. Another example is real estate transactions, as wire transfers cannot be submitted on weekends when FIs and title companies are closed. If a transaction is not completed by Friday afternoon, it must currently wait until Monday to be finalized. FedNow firmly anchors our payments infrastructure in the era of immediacy – and presents a unique opportunity for credit unions to secure their continued relevance by actively participating and investing in the wave of real-time payment innovations. Now is the time to leverage the benefits of this new payment rail to develop and deploy faster, more convenient payments solutions that strengthen member satisfaction and loyalty amid the shifting payments landscape.
The launch of FedNow represents a disruptive yet promising shift toward mainstreaming instant payments and meeting consumers' evolving expectations. This new payment rail will facilitate improvements in efficiency and accountholder experiences, enabling credit unions to deliver innovative services and cement their position as trusted players in the era of instant payments.
Jon Ungerland, CIO, DaLand CUSO
Near term, FedNow is, at least, an admission (at long last) by the traditional banking sector (The Fed, Treasury and Big 5 Banks) that the remaining days of the electronic dollar as the predominant vehicle of value storage and transmission are … few. In a world of proven global networks like Bitcoin, Ethereum, XRP, and other notable and indisputably successful examples of distributed ledger tech, the global monoliths of money management begrudgingly conceded they must migrate toward the era of ‘streaming money,’ or risk irrelevance in the profitable and power-producing space of international remittance, cross border payments, and business-to-business B2B settlements.
However, the launch of the Fed's new "real-time" liquidity movement network could, in a more dire set of circumstances, herald the accelerated collapse of banking stability and exacerbate existing pressures on bank liquidity - especially of local and regional banks already struggling under the pressures of historically unprecedented rate climates and precarious monetary policies. It’s uncanny, for example, that no sooner did FedNow launch then virtual moments later, PayPal announced a new stablecoin, promising better yields and more convenient access for customers to manage their deposits (as an alternative to electronic dollar checking and savings accounts). A certain scene from “There Will Be Blood” comes to mind: “I drink your milkshake, I drink it up!”
For leaders in the cooperative, community financial institution space, wherein we’re allegedly focused on the local storage, stewardship, and utilization of wealth (along with cultivation of community financial literacy as a means of avoiding mega-bank and corporatist usury), the recent advent of FedNow also presents a crucial question which ought to rise to the forefront of strategic planning dialogs: How will your institution combat deposit outflows and win back capital already drained via new straws like FedNow, crypto exchanges, Bitcoin, PayPal, etc.?
Without an answer to this question, and without a solution to allow new forms of local digital capital to be stored and utilized locally, the final effect of FedNow seems pretty obvious: to provide a ‘better, faster, cheaper’ “straw” for the megalithic monarchs of banking, neobank innovators, and new money networks to ‘drink your milkshake’ - same day!
Landon Glenn, CEO and Co-Founder, ASA
FedNow and faster payments brings with it the need for stronger identity management. Institutions will be challenged with how to confirm that the entities who send and receive payments are who they say they are. In the case of real time payments, previously trusted verification sources – like email addresses – won’t be good enough. Without proper identify verification methods, credit unions will open themselves up to potentially catastrophic fraud.
Here is where a digital wallet strategy could help with the verification of payments and securely moving money. By having identity confirmed and verified in a single place – and then having infrastructure that anonymizes, normalizes and tokenizes that information for greater security – banks and credit unions can embrace faster payments with more confidence. Plus, consumers and businesses are in greater control of their data and payments.
There are many advantages to be realized with FedNow and faster payments – but the identity problem must be solved first.
Neetu Bhagat, Chief Financial Officer, Origence
Even though real-time payments have been in play through the RTP network from The Clearing House since 2017, the launch of FedNow Service has garnered interest as it promises to make the option of safe, real-time payments much more widely available through increased adoption among smaller financial institutions who have shied away from the RTP network. While instant payments will not likely replace existing payment processes such as the Automated Clearing House (ACH) for electronic payments, paper checks, and other funds transfers, in the short term it will have far reaching impact in the long run.
Currently, 35 banks and credit unions, along with 16 back-end service providers, have completed certification to use FedNow as early adopters. With almost 8,000 banks and credit unions in U.S. it would take us some time to create mass network connectivity even though Fintechs are racing to get financial institutions on FedNow rails.
The use cases for RTP with FedNow are abound due to the backing of the Fed’s current infrastructure. Unlike the most popular instant payment apps like Venmo, Paypal, CashApp and even Zelle which are widely used for peer-to peer (P2P) payments, FedNow will disrupt all payment types including, but not limited to:
Account-to-Account(A2A) – mobile wallet funding/defunding, investment account management, corporate cash pooling.
Consumer to business (C2B) – paying bills and tuition, loan servicing, insurance, or purchasing goods and services.
Business to Consumer (B2C) – disbursing 401(k) loans or investments, insurance payout, rebate claims.
Business to business (B2B)– Accounts Payable/Accounts Receivable.
Peer-to peer(P2P) – transfer of funds to family and friends, international remittance.
Consumer to FI – paying outstanding debts, loans, and mortgages.
Business to employee – paying gig workers instantly, payroll payments, and expense reimbursements.
Consumer to Government (C2G) and (G2C) – fee and tax collection, tax refund, relief checks.
Real-time payments will dramatically improve the speed and efficiency of the US payments system in the coming years. However, being instant and irreversible bring new challenges for managing and mitigating fraud risks. As regulatory guidance is still evolving, financial institutions will need to reassess their risk portfolio and ensure their fraud detection mechanism has been configured specifically to the risk profile of their products.
Given the global momentum and consumer demand for faster payments, FedNow provides a great opportunity for financial institutions to provide innovative offerings to target and serve unique payment needs of fintechs, businesses, and technology companies.
Pete Major, VP of Fintech Services, MDT
The FED knows there’s a great opportunity for cheaper real-time payments. Short-term, we expect FedNow to take on payments that would normally be sent via ACH or Wire, primarily in the Account to Account, B2B or B2C space. As software providers create the ability to send FedNow payments, you’ll see larger adoption rates in the industry. Long-term, you may see a desire for FedNow in P2P and retail payments (remember when we used checks?). It will take considerable development to enter those segments, not to mention facing some very entrenched competition. At some point, we’d expect to see some industry consolidation in payment rails but in the meantime, credit unions and banks will need to support multiple payment rails. Having a software provider that can help them support multiple payment rails, network mandates and settlement protocols will be extremely important over the next few years.
Shanon McLachlan, President of Credit Union Solutions, Jack Henry
Credit union members - both retail and commercial - are looking for simpler, faster and more convenient ways to move money, triggering a high demand for faster payment options. At Jack Henry, we’re already seeing financial institutions meet these needs – we have 100 institutions in various stages of implementation for FedNow and 200+ already live on the RTP network. Both numbers are expected to grow tremendously in the next few months. In fact, 70% of financial institutions with assets of $500 million to less than $1 billion plan to add real-time payments via FedNow to their payments strategy within the next two years. Credit unions understand the need to prioritize these offerings to remain competitive and relevant.
FedNow will modernize the way people send and receive money, first domestically, and eventually internationally, due to the use of standardized messaging formats. The addition of FedNow allows credit unions to have more options for faster payments and another way to grow deposits. We believe use cases that use FedNow present a viable alternative for small and medium-sized businesses looking to avoid rising interchange fees and improve the point-of-sale experience for their customers. Early use cases are also pointing to payroll, merchant account settlement, insurance claim payments, bill pay, and more. Over time, new use cases will be realized, and credit unions will determine which network(s) best fits their needs. For now, we encourage credit unions to start experimenting with receive-only on both FedNow and RTP. Working with technology providers that have existing relationships with these networks can be the first step toward supporting their faster payments strategies.
Siva Narendra, CEO, Tyfone, Inc.
This is how I summarize the potential short and long-term effects of FedNow and similar real-time payment technologies:
Short-term effects:
Faster payment settlement times - money transmitted in seconds rather than days.
Improved cash flow for individuals and businesses that need urgent access to funds.
Lower fees compared to card networks and wire transfers.
Shift in customers from major banks to community institutions as they adopt new tech.
Expanded access to digital payments for underbanked groups previously reliant on cash or check cashing services.
Long-term effects:
Fundamental changes to how people can be compensated, enabling new on-demand payroll and payment models.
Broader financial inclusion as more unbanked and underbanked gain account access.
Lower costs long-term for payment services as central bank systems drive efficiencies .
GDP boosts (projected up to 2% as seen in India and Brazil) from velocity of money effects.
Decline of cash and checks as real-time digital payments become ubiquitous.
Opportunities for new financial products and services built on real-time infrastructure.
International adoption spreading as more central banks pursue modernized platforms.
The key overarching impact is increased accessibility, speed, efficiencies, and potential for financial innovation. In the long run, systems like FedNow could transform payment experiences and economic inclusion across society.