To help meet growing consumer demand and foster nationwide reach of instant payments, the Federal Reserve plans to launch its own new instant payment rail, the FedNowSM Service, in 2023. This means that by this time next year, the U.S. will have not just one immediate payments rail but two. Ever since the Federal Reserve made its announcement back in August 2019 about the new FedNow Service, questions have abounded. Today’s article answers some of those questions as the Federal Reserve continues developing its new rail.
A new instant payment infrastructure
At its most fundamental level, the FedNow Service provides interbank clearing and settlement that enables funds transfers from a sender’s bank account to a receiver’s bank account immediately and at any time.
Just like The Clearing House’s RTP® network, the service will use the widely accepted ISO® 20022 standard and other industry best practices to make it easier to integrate with back-end systems. Additionally, the FedNow Service will include a wide array of features that will:
FedNow Service use cases
Financial institutions and service providers can work together to leverage the FedNow Service features and functionality as a springboard for developing new instant payments use cases and services. Use cases include immediate payroll, e-invoicing, funding brokerage accounts, and making claims payments as a few examples.
For example, through account-to-account (A2A) capabilities, the FedNow Service can allow members to transfer funds between accounts at two different financial institutions to meet a loan payment deadline or cover incoming charges to avoid an overdraft fee. Businesses can use A2A transactions to maximize liquidity and interest income by providing real-time transfers between accounts across subsidiaries.
With bill-pay capabilities, your members and businesses can move money immediately from their accounts to biller accounts, potentially limiting service disruptions and late fees. For a list of the most common use cases offered by instant payments, download Corporate One’s infographic.
Supporting your instant payments journey
Credit unions interested in adopting the FedNow Service or wanting to learn more about it should start conversations with service providers and correspondent partners (like Corporate One), and core processing vendors. For some, this might include outsourcing aspects of processing and core systems for the FedNow Service.
As a pilot participant for the FedNow Service, Corporate One is working to develop our capabilities so we can help credit unions connect to the FedNow Service, manage their profiles, cash, and settlement, and make payments. We offer similar services today for the RTP network, as we want to ensure credit unions can take advantage of both networks (which will not be interoperable at this time).
Getting onboard sooner rather than later
It’s no secret that immediate payments can help your organization attract and retain customers, generate new revenue streams, and remain competitive in an increasingly fast-paced world. In fact, nearly two-thirds of businesses would factor access to faster payments into future decisions on whether to switch banks.1
Wherever your credit union is on its immediate payments journey, I encourage you to reach out to me at 866/MyCorp1 or email@example.com to have a conversation about the importance of both new payment rails and what Corporate One can do to help you get started. We’re here to answer your questions about the specifics of instant payments and guide your credit union on the key decision points it needs to make to get started.
1. Federal Reserve, Businesses Look to the Future with Faster Payments (August 2021)
VP, Product Market Strategist