1st Source Bank on empowering customers with payment choice
7/22/2024
1st Source Bank (Off-site) is a locally controlled financial institution serving businesses and consumers throughout the U.S., with a majority of their customers in northern Indiana and southwestern Michigan.
For our latest profile, we spoke with Andrea Short, president and chief executive officer of 1st Source Bank, and Jim Hunt, division head of payment strategy. Short and Hunt explained how 1st Source leverages the FedNow® Service to drive business goals and deliver value to their customers.
Q: How are you currently offering the FedNow Service to your customers? How do you anticipate your instant payment offerings might evolve over time?
JH: “We are live on the FedNow Service with both send and receive capabilities enabled, but with some strategic limitations on the send side that we’ll be lifting over time. As we listened to our clients, we realized that they want to resolve some of their day-to-day obstacles with different payment options. Enabling our customers to receive instant payments was a great first step. Next, enabling a limited number of business customers to send instant payments helped ensure we have the right controls in place and are providing the experience our customers need to feel comfortable with this new payment choice.
“Now we are looking to enable send capabilities for more customers. Our approach comes down to empowerment: We want clients to be empowered when choosing how to route a payment and we want them to make that choice based on their own requirements for the payment, balancing cost and speed. We’ve tailored our instant payment offerings with this empowerment in mind and are targeting use cases where the FedNow Service fills a gap for our customers.”
Q: You mentioned that you’re focusing on specific solutions where instant payments can really benefit your customers. Can you describe the top 2-3 instant payment use cases you are seeing now and a few you are targeting for the future?
AS: “One of our most exciting success stories comes from a customer who simply walked into a banking center with an immediate need — the customer needed to send money right away to an employee driving one of his company’s trucks. Our customer needed help determining the best way to send the money and make it available right away. Enabling that customer to send on the FedNow Service was a quick process, and the money was delivered to the driver within seconds. It is a standout success for us because we could meet our client’s need when their in-place processes broke down, and we were also able to help them realize the value of instant payments as a tool for their business.”
JH: “With our business clients, cash concentration has been a major use case — moving money between accounts when it’s needed. Earned wage access and daily payroll are increasingly more popular, as well as use cases like reimbursing employee expenses, franchise leases or rent payments.
“As we think about the future, we’re also excited to incorporate request for payment (RFP), bill payment, and to explore how QR codes can be leveraged across a range of use cases. Again, it goes back to the goal of empowering our customers and meeting their needs now, while also planning for the evolving use cases of the future.”
Q: The FedNow Service is your first instant payment rail. How did 1st Source prepare for the FedNow Service on the back end? Are there any learnings you can share from your implementation process?
JH: “One of the keys to our success is that we worked very closely with our core and service providers. We intentionally chose a service provider that closely aligned with our own timelines and goals, and this made for a remarkably smooth process. This isn’t to say that we didn’t have to adjust — some of the fraud mitigation tools we had in place, for example, made it easier to transition than we anticipated, but we did have to plan for the 24x7x365 nature of instant payments, which included staffing considerations. Overall, we were surprised to find the process a lighter lift than we’d anticipated.”
Q: How has the FedNow Service added value as part of your suite of payment options?
AS: “From a strategic perspective, smaller banks need to be smart and proactive because we recognize instant payments will be table stakes in the near future, just as mobile banking has become table stakes today. We must be mindful of where the trends are now, and also where they might be in the future. We want to control the payment, have confidence in the deposit for our bank, and make sure our customers understand the value we’re bringing to them with the payment choices we offer.”
JH: “Like many banks in a similar position, our biggest fear was that the FedNow Service would cannibalize our wire payments. To date, this hasn’t been our experience. Instead, instant payments have created a new pathway for payments that might have gone out on other rails — ACH, for example — because it wasn’t worth the cost to send those funds as a wire payment. Rather than reduce our share of payments in some areas, we’ve only seen our overall share of payments growing. As we expand our instant payment offerings to more customers and more use cases, we’re anticipating this growth will continue.”
Want to learn more about the real-world impact of instant payments? Read more FedNow Q&As here.