As someone who travels the country, speaking with credit unions at numerous industry events, I've witnessed the buzz surrounding the innovative FedNow® Service. The recent milestone of over 500 financial institutions—including 73 credit unions—joining the service only amplifies the excitement.
Let's unravel the mysteries of the FedNow Service through some commonly asked questions and understand how it can reshape the landscape for credit unions, fostering efficiency, modernity, and enhanced member satisfaction in the rapidly advancing world of financial services.
I’ve heard a lot of talk about the FedNow Service, but what is it exactly?
Launched in July 2023, the FedNow Service is a new instant payments infrastructure developed by the Federal Reserve that allows financial institutions of every size across the U.S. to provide safe and efficient instant payment services. Through financial institutions participating in the FedNow Service, businesses and individuals can send and receive instant payments in real-time, around the clock, every day of the year. Financial institutions and their service providers can use the service to provide innovative instant payment services to customers, and recipients have full access to funds immediately, allowing for greater financial flexibility when making time-sensitive payments.
How do payments transact within seconds on the FedNow Service?
The FedNow Service offers a significant benefit through its capacity to promptly clear and settle transactions in real time. This capability empowers financial institutions of all sizes to facilitate instant customer money transfers. Here’s a detailed breakdown from the Federal Reserve regarding this 10-step process.
What features does the FedNow Service bring to the table?
The FedNow Service includes many features and capabilities:
Core clearing and real-time settlement capabilities to support various transaction types and use cases.
Use of the widely accepted ISO® 20022 standard to support interoperability.
Features to support using service providers and correspondents and an option to enroll as a “receive-only” participant.
In addition to transaction limits, negative lists, participant reporting, and fraud notifications, the FedNow Service has numerous features that protect against fraud.
Request-for-payment capability and tools to support participants in their handling of payment inquiries, reconcilements, and certain exceptions.
Features to enhance the experience for credit unions by broadcasting participant availability to support their transition to 24x7x365 operations, a user interface to support data needs, and the ability to have access to balance information on weekends.
Payment integrity, data security, and tools to help credit unions combat fraud, such as transaction value limits and reporting features.
A liquidity management tool that allows participants and others to transfer funds to each other to support the liquidity needs of instant payments.
Who can join the FedNow Service? How does my credit union connect?
As with current Federal Reserve Bank services, the FedNow Service is available to depository institutions eligible to hold accounts at the Federal Reserve Banks under applicable federal statutes and Federal Reserve rules, policies, and procedures. Participants can designate a service provider or agent to submit or receive payment instructions on their behalf. Participants can also settle payments in the account of a correspondent if they choose to do so. Merchants, consumers, or non-bank payment service providers can access the service through depository institutions as they do today with other payment systems.
Your credit union can choose to connect:
1. Directly using a FedLine Solutions connection (WAN or VPN) to send and receive FedNow ISO 20022 messages and perform FedNow Service profile administration.
What instant payments use cases appeal most to credit unions?
From A2A to B2B to G2C to P2P, there’s an alphabet soup of use cases that would interest credit unions.
According to a 2024 report from Cornerstone Advisors, a financial services consulting company, 45 percent of credit unions said that account-to-account transfers were the most important use cases for their credit union’s real-time payments strategy.
Thirty-one percent of respondents identified last-minute consumer payments as their primary use case, 22 percent mentioned payroll payments, and 20 percent highlighted recurring bill pay. Additionally, other credit unions reported utilizing immediate payments for various purposes, such as ad-hoc bill payments, B2B transactions, government tax and fee payments, and consumer retail purchases.
Are you interested in more use cases? The U.S. Faster Payments Council has an extensive list.
One more bonus question: How can FedNow benefit credit unions?
In a world driven by instant gratification, the movement of our money is no exception. The FedNow Service goes beyond keeping pace with the times; it empowers credit unions with a competitive advantage that shouldn’t just be reserved for the big banks. By providing instant payments, credit unions enhance their competitiveness, meeting the growing demand for advanced digital banking services from both individual and business members. An integrated, instant payment option not only broadens the range of services for your members but also has the potential to attract new ones. In addition, FedNow allows credit unions to potentially steer members away from manual, time-consuming, and costly check and cash payments. Through FedNow, credit unions have numerous opportunities to add value for their members through various instant payment capabilities, driving revenue, member retention, and cost reduction.
For more information about the FedNow Service, consider subscribing to our new quarterly e-newsletter, the Immediate Payments Insider. I also encourage you to contact me at 866/MyCorp1 or tthomas@corporateone.coop. I’m happy to discuss the next steps in your immediate payments journey.