SPONSORED CONTENT PRESENTED BY FEDERAL RESERVE FINANCIAL SERVICES
The FedNow Service launched in July 2023 with 35 financial institutions live on the instant payments network. Today, that number has grown to over 500 financial institutions, with more joining each day.
Nick Stanescu, executive vice president and chief executive of the FedNow Service, weighs in on the success of the new instant payments infrastructure, the importance of industry engagement and his priorities for 2024.
Q: You’ve taken on a new leadership role for the FedNow Service. Can you tell us a little about it and some of your priorities for 2024?
“My role has shifted from leading business-related functions during the development phase to now overseeing all FedNow-related activities. In part, this marks the transition from the build phase to daily operations as we focus on running and growing the service. Today, I’m equally focused on the future FedNow Service product roadmap, driving adoption and strengthening customer experience. Within Federal Reserve Financial Services, it’s important that we have a consistent, superior customer experience across the financial services we offer — including the FedNow Service, FedACH® and Fedwire® Funds Service, to name a few.
Moving forward, continued industry engagement will be important to support adoption of the service, leverage instant payment use cases and ensure we prioritize the right service enhancements.”
Q: It’s been about seven months since launch — how are you feeling about adoption and growth of the FedNow Service so far?
A: “I’m really excited about where we are. We recently hit a new milestone, exceeding 500 financial institutions live on the service. Today, we are seeing consistent traffic and volume growth that has exceeded my expectations. I think adoption numbers speak for themselves in terms of enthusiasm around the industry. That said, our goal is to make sure eligible financial institutions across the U.S. are enrolled on the FedNow Service, and we are focused on supporting and growing industry adoption. We’ve already seen many use cases leveraging the service and know businesses and consumers are intuitively and seamlessly using instant payments through their financial institutions. To me, this speaks to the built-in demand for instant payments and where we are headed in terms of future growth.”
Q: What are some of those instant payment use cases that you are seeing today, and some you look forward to seeing?
A: “The majority of payments on the network have been account-to-account payments, and I’m hearing a lot about digital wallet funding and defunding. These examples make sense because consumers can experience friction during these transactions, and we can easily see the benefits of immediate access to money transferred between accounts. Earned wage access and instant insurance disbursements are also in high demand right now.
Bill pay is a use case where I expect to see growth, as it can make a big difference for consumers making time-sensitive payments and for the financial institutions offering these capabilities in terms of increasing customer satisfaction and retention. Another service feature that shows promise is the request for payment option, which can be leveraged in a variety of ways to support innovative use cases that help businesses and consumers manage cash flow.”
Q: How is the Federal Reserve continuing to engage with the payments industry?
A: “Our level of engagement with the industry has been unprecedented when it comes to the FedNow Service. The FedNow Pilot Program, which served as an advisory group throughout the build process, is a great example of this. We have plans to continue engaging with FedNow Service users to ensure new features and functionality are meeting the demands of the industry. That’s also a key advantage to us building the FedNow Service in-house in a cloud environment — it gives us the flexibility to be responsive to the changing payments landscape.”
Q: What’s on the horizon for new FedNow Service features and functionality?
A: “Onboarding is a big area of focus for us. One lesser-known fact is that we didn’t just build a new service, we also digitized the entire onboarding experience for FedNow participants. Our current record for a financial institution to onboard is eight days, from initial term agreement to being live on the network. This is an area we will continue to make improvements in, because it’s important to make onboarding as effective and frictionless as possible. To that end, we also have a dedicated onboarding team to support the process.
Risk mitigation also remains a priority. In addition to the features launched with the service, we will introduce new capabilities, including a feature that will enable correspondent banks to set net send limits for their direct respondents, which provides liquidity management control. Another upcoming feature will offer the ability to reject payments that exceed a defined cumulative value or velocity threshold.
We are also planning to introduce a tech-centric developer resource allowing financial institution participants to access documentation as well as code and message samples to assist with service implementation. This is only the beginning — we have more features and functionality in the pipeline and will continue listening to the industry to establish future priorities.”
Q: How do you envision the future of instant payments? Will these payments replace other payment rails?
A: “Consumers and businesses like choice. There are times when ACH or wire is the most effective way to make payments, but there are many other use cases where instant payments are necessary — especially when it comes to critical, just-in-time payments and when instant cash flow is advantageous. We will likely see some substitution among wire and ACH payments, but more importantly there is room for overall growth in payments activity as banks develop innovative solutions for instant payments, meaning the overall pie will grow.”
Q: Why should financial institutions consider adoption if they haven’t already, and what advice do you have for them?
A: “My advice is to start now. Either by reaching out to the Federal Reserve directly or starting conversations with a service provider — there are 25 currently certified on the network. Knowing your customers is critical, but there’s also value in experimentation when it comes to a new service. Configuring the service as ‘receive’ first is a testament to its flexibility and allows you to get comfortable with instant payments, yet the true value lies in the ‘send’ capability. Instant payments will mature and begin to take off even more quickly as the industry continues to find innovative use cases — the growth will be tremendous, and banks should have the experience and be ready to take full advantage of what the future holds.”
