By W.B. King
When the FedNow Service launched on July 20, 2023, industry insiders questioned how quickly the platform would gain traction. Roughly one year later, approximately 800 credit unions and banks are using the service. While financial institutions (FIs) continue to sign up, the overall user rates were anticipated to be higher at this juncture.
In a public-facing Q&A that took place July 15, 2024, Mark Gould, chief payments executive of Federal Reserve Financial Services (FRFS), said real-time payments in the U.S. are “still maturing,” but that use cases are “evolving quickly.”
The FRFS has 2,000-plus employees serving the Federal Reserve System’s portfolio of retail payments, wholesale payments, instant payments and cash services to more than 9,000 U.S.-based FIs, Gould noted. On a typical day, FRFS processes roughly $5 trillion through its systems and manages $2.3 trillion of U.S. currency in circulation.
A self-proclaimed “payments geek,” Gould said that in recent months there is growing excitement for FedNow from both consumers and industry insiders. “I love that I get to hear the views of people across the country about payments and how they think we can work together to shape the future of our industry,” he said.
Three topics, he noted, are of particular interest.
Instant payments momentum. “The Federal Reserve’s goal is nothing short of making instant payments ubiquitously available and widely used in the United States. A number of current use cases will help us get there, and more are being explored,” he said.
Fraud mitigation. Noting that the potential for fraud is one of the top three concerns community banks and credit unions tell him about instant payments, Gould said: “The FedNow Service has additional built-in tools to help participants manage fraud risk, which can augment the anti-fraud tools financial institutions and their service providers use today. FRFS also has implemented new services to help address fraud threats in other payment rails, such as the FedDetect Duplicate Treasury Check Notifier Service and FedPayments Reporter for Check.”
Innovation. Gould pointed to Fedwire Funds Service pending migration to the ISO 20022 messaging format (on which FedNow is already based), which, he said, has senior leaders buzzing with excitement. “Less than a year remains before the migration date of March 10, 2025. While the Fed, in partnership with financial institutions, processors, fintechs and technology providers, has some work to do before then, we all will reap subsequent benefits by leveraging the data-rich capabilities of the ISO format. I think it’s something people will continue capitalizing on for many years to come.”
Time to Get Going on FedNow
Among credit union leaders touting the benefits of adopting a real-time payments strategy is Alloya Corporate Federal Credit Union. “If you’re serious about supporting your members’ needs today, tomorrow and well into the future, now is the time to get going,” said Kathy Feringa, the credit union’s vice president of member product support.
The Naperville, Ill.-based Alloya Corporate FCU supports the success of 1,400 credit unions and credit union entities from across the country through cooperative payment, liquidity, investment and member solutions geared to simplify both back-office and member-facing operations, Feringa noted.
“At Alloya, we’re seeing instant payment activity tied to organizations like Plaid, Grubhub, Robinhood and sports betting facilities. In fact, Grubhub drivers have the ability to do an ‘Instant Cashout’ of their earnings, that is, if their financial institution supports it,” she said, noting that FedNow competitor The Clearing House’s RTP network has over 650 participants and growing. “Soon, the U.S. Department of Treasury is expected to connect to the FedNow Service for social security disbursements, tax refunds and more.”
During the spring member meeting of the U.S. Faster Payments Council, Feringa was among panelists discussing real-time payments adoption. “An audience member expressed concerns that real-time payments will take volume away from other types of payments like ACH or wires,” she recalled. “I loved the response my fellow panelist shared: ‘Worry less about transaction volumes shifting from one product to another and spend more time worrying about transactions leaving the credit union completely.’”
A Platform for Industry Innovation
Gould said the number of FedNow use cases continue to grow, including business to consumer, consumer to business, business-to-business request for payment, person-to-person request for payment and account to account.
“We’re seeing a variety of use cases where instant payments can solve pain points and offer efficiencies – digital wallets, payroll and earned wage access, e-commerce, bill pay, real estate transactions, online marketplaces, insurance and government payments,” he noted.
“In many situations, these use cases will benefit from the service’s ‘Request for Payment’ feature,” he continued. “The FedNow Service was built to be a platform for industry innovation, and we’re starting to see the fruits of that, which is exciting.”
As Gould looks forward to the remainder of 2024 and 2025, he said the FRFS team is working hard to transform FedNow hopes and dreams into reality. This will be achieved, in part, but more FIs opting for both send and receive (many FIs use the former).
“We’re building our network, the number of receive points, and send-side adoption, with more financial institutions gradually gaining the ability to send on their technology platforms. We expect to enhance the service’s functionality over time as the network and volumes grow,” he noted.
“Financial institutions are working with their corporate customers on specific use cases, such as encouraging corporate originators to make more single B2B payments for single-invoice items, as opposed to single payments for multiple invoice items,” Gould added. “That's a real focus for us in the year ahead.”