SPONSORED CONTENT PRESENTED BY FEDERAL RESERVE FINANCIAL SERVICES
The FedNow Service is wrapping up 2024 with more than 1,000 participating financial institutions, headquartered in all 50 states. Additionally, more than 35 service providers are certified to support payment processing for participants.
Small and midsize financial institutions, including community banks and credit unions, make up more than 95% of the participants on the FedNow Service network. See a list of all participants and certified service providers on FRBservices.org®.
“The 1,000-plus financial institutions live on the FedNow Service today reflect the growing momentum for instant payments in the industry,” said Mark Gould, chief payments executive for Federal Reserve Financial Services. “We expect participation will continue to grow in the months and years ahead as financial institutions build out use cases that drive value for themselves and their customers.”
Why offer instant payments?
According to recent Federal Reserve surveys, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services.
With the FedNow Service, banks can provide payment products their customers are seeking while delivering real value to their own organization. Offering instant payments can help your bank:
- Stay competitive in an ever-evolving market
- Improve customer experience
- Generate new revenue and save on costs
- Attract and retain customers
Individuals and businesses using instant payment solutions through their banks can also reap important benefits such as gaining more control over cash flow and precisely timing payments. For some financial institutions, these benefits to customers were a driving force in their FedNow Service adoption.
Enabling send from the start has added benefits
Some financial institutions join the FedNow Service as receive-first participants with plans to enable send capabilities when they are ready. Others are maximizing the value that instant payments can offer by enabling send right away.
Allowing your customers or members to send instant payments opens an array of opportunities for your financial institution to gain faster, stronger return on investment, beyond what receiving instant payments can offer. For example, you can:
- Provide better customer service through the transparency and convenience of instant payments
- Retain or gain customers seeking send capabilities
- Discover more revenue generation opportunities than with receive-only (such as new loans)
- Reduce costs associated with processing higher-touch transaction types (such as checks)
- Gain operational efficiencies and reduce manual interventions
- Generate new fee income through send monetization strategies
By electing to enable send capabilities now, your financial institution can gain valuable experience in a manageable way as transaction volume on the FedNow Service continues to grow.
There’s a misconception that once a financial institution enables send, they may be overwhelmed by transaction volume and potentially lose control over their fraud risk management abilities. But the FedNow Service affords financial institutions significant control and the ability to take a measured approach as they ramp up their schedules for sending instant payments. Visit FedNowExplorer.org for more tips on how to enable send at your own pace.
Use cases gaining traction
The FedNow Service supports a range of use cases and transaction types, allowing financial institutions and other organizations to build instant payment solutions that align with their business strategies and the needs of their customers.
Certain use cases have already started gaining traction such as me-to-me transfers, digital wallet funding and defunding, payroll and earned wage access, microdeposit account verification, online marketplace seller payouts and more.
Real estate transactions are another trending use case, with instant payments uniquely poised to benefit parties on both sides of a payment. Whether building, buying or managing properties, the real estate industry depends on the timely settlement of funds. These transactions are often complex, with payments issued to a number of parties — and through separate payment flows — before a transaction is complete. In many cases, real estate transactions also involve manual payment processes, which can lead to inefficiencies and costly delays for everyone involved.
According to Zach Jacob, vice president of business development at Payload, a fintech that integrates inbound and outbound payment capabilities for a variety of business and software platforms, this friction and complexity makes real estate transactions a prime candidate for innovation.
“There can be 10 to 15 different payouts that a title company may issue on the outbound side of a home purchase, whether it’s an agent payout, the mortgage payoff or paying a utility company before finalizing a sale,” Jacob said. “We’re seeing demand to move toward faster, irrevocable payments that ensure all parties, on either side of the transaction, can be paid quickly and efficiently.”
FedNow Service instant payments are final, irrevocable and “always on,” providing immediate settlement and availability of funds to the recipient 24x7x365. When the timing and availability of funds is critical, instant payments can streamline complex payment flows between multiple parties. Innovators in the real estate industry see this streamlining as a crucial step toward efficiency and customer satisfaction.
“The FedNow Service is an ideal solution for the real estate industry because it directly addresses the problems the industry needs to solve,” said Jason Doshi, CEO and co-founder of paymints.io, a fintech that provides a digital payments platform for title companies and real estate brokers. “As the industry adopts instant payments, we’ll see these time-sensitive transactions become faster and more convenient. By offering 24x7x365 payments, we also remove the urgency to make it to a bank before it closes or to send a payment in a time crunch to meet a processing deadline. Users are looking for this ease and convenience, so it’s the experience we help our clients deliver.”
Financial institutions that offer instant payments via the FedNow Service to their real estate customers can streamline complex payment flows between multiple parties and improve customer satisfaction.
For more information on instant real estate transactions and other use cases, visit the Use Case Arena on FedNowExplorer.org.
Lessons learned from participants
Since the FedNow Service launched in July 2023, leading-edge organizations that are on the service have learned plenty of valuable lessons along their instant payments journey. Here are some that participants have shared:
- Getting started now has added benefits. Financial institutions adopting the FedNow Service are positioning themselves as innovators and improving customer experience by offering instant payments before many of their competitors enter the market.
- It’s OK to start small and grow. Participants have found that they are in control when offering instant payment solutions via the FedNow Service. Many started by enabling a certain segment of customers to make instant payments, then expanded to other segments. Others started by enabling a limited number of use cases or by only allowing instant payments during certain hours.
- Around-the-clock staffing isn’t necessarily needed. Instant payment transaction processes are automated — either through a financial institution’s service provider or the financial institution’s own technology. The transparency and automation of instant payments reduce customer inquiries and the need for manual intervention.
- FedNow Service instant payments can be easier to reconcile than other faster payment services. Because payments made with the FedNow Service are immediate, there’s no lag in settlement time versus other faster payment services that may take a day or two to clear and settle. This makes reconcilement easier and more streamlined than payment services that defer settlement.
- Ask your correspondents and service providers what reports will be available. Financial institutions that use a correspondent (e.g., bankers’ bank or corporate credit union) or other service providers to settle instant payments will want to understand what reports they are providing and their timing so your back office or treasury can plan accordingly.
- Make sure service providers can support your instant payment plans. Many FedNow participants use service providers such as payment processors, mobile banking platform providers and more to implement and support instant payments. It’s important to ensure your financial institutions’ instant payment goals and business objectives are supported by the service provider(s). You’ll want to ask what ISO® 2002 messages they support, which use cases they support now, what’s on their future roadmap and more.
For more lessons learned, read the “7 lessons learned FedNow Service Participants” [LINK] article on FedNowExplorer.org.
Learn more
For more on the FedNow Service, including success stories from participants and others leveraging the service, guidance on getting ready for the service, and details on features and functionality, visit FedNowExplorer.org.
