As we sail through July, it strikes me that we’re celebrating the one-year anniversary of the launch of FedNow®. July 20, 2023, was a big day for the industry, with the Federal Reserve’s much-anticipated instant payments system finally going live with 35 early adopting financial institutions (FIs) and 16 service providers. A year later, we’re up to more than 902 FIs on the FedNow network, and those numbers continue to grow.
Slowly but surely, adoption has started to climb. And while there’s been a lot of progress, there continues to be room to prioritize instant payments as part of a larger business strategy. We’ve learned some hard, but important, lessons over the last year, and reflecting back, I think five key developments have risen to the surface:
- Patience may be a virtue but it’s not a requirement of instant payments.
FIs are starting to onboard onto FedNow, and they are talking to core providers to figure out the functionality to launch with, but there’s not a lot of sending volume on either RTP® or FedNow. FIs seem to be taking a conservative approach, starting as receivers and later considering sending. It’s not that they don’t want instant payments; it’s about taking a phased approach. I think most FIs are trying to figure out what it will look like to get up and running and what their market strategy is.
To be fair, some providers have yet to build out the necessary tools for sending. Others have them, but the connections continue to be a point of possible delay. For example, many credit unions use corporate credit unions as their connection points, and most of them are in the process of setting up their own third-party connections. That’s progress, but it presents a challenge for downstream FIs: Even if I want to, I may not have a fully established option yet.
We encourage FIs to keep looking. Explore opportunities to get up and running with instant payments via your core provider or another certified service provider. They can help you realize opportunities and revenue streams from instant payments sooner than later. Because more widespread adoption of instant payments is going to happen; it’s just a slow migration to get there.
- National payments organizations, like the U.S. Faster Payments Council (FPC), are chipping away at barriers to adoption and broadening awareness of use cases.
NEACH is a founding member of the FPC, and we are actively engaged in its Work Groups and initiatives to help drive the future of faster payments. For instance, I am in the FPC Cross-Border Work Group, and we are looking at global instant payments models and the challenges associated with them. We haven’t developed concrete recommendations, but rather, we’re sparking dialogue about existing modernizing factors and what the industry could move toward—ideas like using blockchain for seamless cross-border payments. We’ve developed several white papers and briefings to guide the industry toward ways of solving cross-border payment issues. They can be found in the FPC’s Knowledge Center.
Overall, participation in national groups like this enables NEACH to bring back information to our membership, and also ensure we’re a voice for them. When I’m at the FPC Cross-Border or Education and Awareness Work Group (another group of which I am part) meetings, I try to take the approach of exploring how shifts in faster payments may impact smaller FIs. We want to make sure we give our members a voice in that space. We also make certain that we’re listening and that we can take a piece back to our membership to share what the industry at large is saying. This knowledge provides insights you can apply to your strategies and empowers you with tools and information to guide decisions.
- The Federal Reserve continues to explore new opportunities for instant payments.
The Federal Reserve has been clear that they will continue evolving FedNow functionality to support new use cases and opportunities. For example, I’m a member of the FedNow Request for Payment (RFP) Work Group. We are seeking to define what this use case looks like for the industry. From billers sending RFPs to customers for monthly bills to consumers using it to request payment for a dinner split, there is a lot of potential, but how to ensure standardization, clarity, and transparency remains to be seen. So, we’re making slow movement, identifying use cases, raising awareness and understanding, and considering how to facilitate future adoption.
It's important that we’re plugged into FedNow and its evolution, so we can share with you, our members, what the Federal Reserve seems to be considering. Throughout my participation in the group, the Fed has sent out updates and asked for feedback, and engaging on that level means that our members are represented and considered as the Fed contemplates new functionality.
- Education equals opportunity.
As the first new payments rails in more than 40 years, RTP® and FedNow both have shifted the landscape. It can be daunting to look at these entirely new systems and identify the ways in which they can be leveraged for banking and payments success. That’s where strategic education comes into play. By raising the larger problems these systems can solve, FIs get a better look at the potential for their customers and members.
With NEACH U’s School of Payments Modernization, we are going to offer two tracks in 2025, with one focusing entirely on the Faster Payments Professional (FPP) Certificate Program as a precursor to the Accredited Faster Payments Professional (AFPP) distinction, and the other emphasizing the future of banking. By separating these programs, we’re able to address the more immediate needs of instant payments implementation, but at the same time, we can take a hard look at where the industry is heading. Because I believe banking will look a lot different in five years, fueled in part by opportunities that emerge with instant payments.
- Modern technologies that support instant payments have emerged.
We can’t ignore the technological revolution we’re experiencing adjacent to the emergence of instant payments. For instance, artificial intelligence (AI) has blown up in the last couple of years; it’s its own modernization factor. We’ve got AI with instant payments on the side. In fact, I’m speaking at the FPC’s Fall Member Meeting on the topic during the panel, “Embracing AI in Payments: What's Next?” because I see it as central to where we’re heading.
As technologies emerge, they can support instant payments in newfound ways. Consider how AI solutions have been integrated into real-time fraud systems to help recognize out-of-band transactions. Or think about ways that technology can enable a more intuitive front-end user experience for instant payments. Because NEACH attends national events and engages with a wide variety of payments experts, including FinTech providers, we can help create programs for our members that speak to their unique concerns and offer insights into how to leverage instant payments in new ways.
What’s Next
Looking back over the past year, instant payments have been a central topic of conversation for all FIs, and we’re at the point where we need to move beyond talk to embrace instant payments as a growth trajectory for our organizations.
So, as you contemplate what’s next for you, consider joining us for the Future of Payments Symposium on September 16 at Hotel Viking in Newport, R.I. On September 15, we’re offering a pre-conference instant payments workshop to help you strategize and position your organization for instant payments success. In addition, the full program is designed to help strategic decision makers understand the current value proposition of instant payments and how to apply it within their organizations.
While it might be a year since the launch of FedNow, there’s still so much to come, and NEACH will continue to serve as your support for instant payments knowledge. As you make decisions, implement new instant payments products, and identify new instant payments opportunities, we are here to offer guidance, support your strategic growth, and help ensure your payments programs are a success.