Despite the challenges and uncertainties that the coronavirus has introduced to our personal and professional lives, we want to assure you that the Federal Reserve System remains committed to developing the FedNow Service. This new 24x7x365 instant payment service, which will allow customers to send and receive payments any time, any day and anywhere within the U.S., continues to be a high priority in our multi-year product and technology roadmap. Indeed, this challenging period has further highlighted the critical benefits of instant retail payments for individuals and businesses.
As your financial institution plans for the future and an eventual return to normalized operations, offering FedNow instant payments to your customers may be on your business horizon. Whether those plans take shape tomorrow, in the next six months or a year from now, here are five points on instant payments you may find helpful.
1. Instant payments provide immediate settlement and funds availability
The payments industry is constantly evolving to provide greater speed and efficiency to end users. While your institution may already be offering consumers and businesses certain faster payment solutions, such as connections to payment apps, these solutions generally provide final interbank settlement and availability of funds to the beneficiary after several hours or even days, despite the end-user perception that funds are exchanged in real time. In contrast, instant payment systems provide clearing, settlement and confirmation in a matter of seconds and provide end users with funds in real time. Because instant final settlement is a defining feature, instant payment systems operate 24 hours a day, 365 days a year.
2. Instant payments could allow better money management
Instant payments are attractive to end users because funds are immediately available, enabled by instant settlement, allowing end users to better manage their money, make time-sensitive payments and have certainty of payment status. Now more than ever, as the coronavirus has changed household economics and forced small businesses to find new ways to generate revenue, it is evident that instant money movement can be critical to efficient money management. In addition to speed, many instant payment systems allow individuals and businesses to send payment messages containing rich data, allowing the sender to clearly specify what a payment is for or embed an invoice to improve reconciliation processes. As a service offering, instant payments allow financial institutions to keep pace with the evolving payments landscape, remain competitive with peers, attract new customers and provide payment service offerings that are aligned with consumer and corporate needs.
3. Instant payments support a variety of use cases for individuals and businesses
Both individuals and businesses can use instant payments to support a number of use cases. For example, in a person-to-person (P2P) scenario, a person could send money to friends or family, and those funds would immediately be available for reuse by the recipient. Because interbank settlement is instant, in a person-to-business (P2B) scenario, individuals could make time-sensitive bill payments on specific dates to avoid expensive late fees from service providers. Receiving businesses could have immediate access to funds. Your institution’s customer base will help determine which use cases will be most relevant to you. Consider whether you serve retail or business customers as well as your customers’ demographics, including location, age and income.
4. Education is the first step in developing an instant payments strategy
Staying educated about faster payments is the first step in developing an instant payments strategy for your financial institution. Generating awareness about the benefits of instant payments will help create internal support for developing an overall product strategy that will help your financial institution remain competitive. Once your financial institution has fully evaluated the potential benefits of instant payments, you should review the potential impacts of incorporating this service into your financial services offerings. For example, you will need to evaluate what changes your institution will need to make to offer instant payments up to 24 hours a day, seven days a week, 365 days a year, including technical, accounting and operational implications. Your staffing, budget and technology will likely need to be adjusted, so be sure to allow adequate time and resources for testing and training.
5. Planning for instant payments is a multi-year process
Certain instant payment solutions have already come to market around the world and here in the U.S. The FedNow Service is expected to be available in 2023 or 2024, a timeline the Federal Reserve System is committed to despite the challenging working environment brought on by the coronavirus. The rollout of a new payment service to your customers – evaluation, decision, budgeting, preparation and implementation – can take up to two years, so we encourage you to begin planning. You can start by seeking education on instant payments, building awareness amongst stakeholders in your institution and reviewing your existing customer-facing, processing and accounting systems.
The FedNow Service will enable financial institutions of every size, and in every community across America, to provide safe and efficient instant payment services in real time, around the clock, 365 days a year. You can help your institution prepare by visiting the FedNow Service page and signing up to receive the latest FedNow news via the FedNow Service Interest Form (Off-site). In addition, contact your account executive to learn more about the FedNow Service and specific use cases that it will support.