Aug. 24, 2023
FedNow launched on July 20—with eager anticipation from the payments industry. But in the past month, we’ve not heard much about transaction volume, use cases, or user experiences. Fortunately, our senior vice president of payments industry relations, Nick Denning, has been following FedNow closely and shared with me his insider’s view on where things stand for FedNow and community banks.
Prior to the launch, the Federal Reserve released a list of 16 certified third-party service providers and 35 financial institutions (FIs). It was encouraging to see the diverse pool of participants, including several ICBA members across the country. This reinforced why ICBA has been passionate about FedNow from the advocacy and ideation stage: It works for community banks and will help ensure payments accessibility and ubiquity in the years ahead.
What we’re hearing
With a constant pulse on community banks, we’re hearing stories from on the ground. Nick recently connected with one of our ThinkTECH Accelerator cohort alumna, Pidgin, a FedNow-certified service provider. Their CEO shared they have five financial institutions processing with them, that transactions flowed in the first hour of service availability, and that there have been no concerns. Nick also chatted with pilot participant David Long, executive vice president of correspondent banking at Bryant Bank, a $2.35 billion-asset bank in Tuscaloosa, Ala., who said their bank’s launch went seamlessly. They are in receive-only mode, so they monitor inbound volume daily; and while it has been smaller to date, they expect it to grow over time.
We also heard accounts of community banks waiting in the queue with some providers to get connected to the system once provider readiness is achieved, but that’s not unheard of when a new solution enters the marketplace. The bottom line is that third-party providers are working to meet the demand and support their clients with instant payments.
As we look for volume to scale, it’s important to remember that the Fed has a vested interest in the success of FedNow and will continue to partner with FIs and the industry to encourage participation and streamline onboarding. They are also realistic this will take time—financial institutions are at varying degrees of readiness—and service providers also must be enabled and ready to support them. A growing list of ready and certified service providers, coupled with the eventual active participation of the U.S. Treasury, will certainly help to drive volume as we move forward.
And while some community banks may be holding off to see how the instant payments journey goes, now is the time for them to put an instant payments strategy in place. At this stage, moving forward with a strategy and a plan for how and when you are going to participate is just as important, if not more so, than being live today.
Because it’s no longer if, but when, it is the right time to implement. The data tells that story: RTP volume has grown significantly over the past few years, and while the RTP Network still has a fairly small number of originators, the volume continues to climb year-over-year at a rapid pace. Over the next decade, we can expect those rates to be sustained, and over time the mix of RTP and FedNow will make up a larger piece of overall payment volumes.
In short, community banks need to view instant payments participation as a requirement to keep pace with changing times and customer expectations. Volume may not climb exponentially right away, but it is important to plan now so you don’t fall behind and miss this timely opportunity.
For more information on FedNow and cultivating an instant payments strategy, check out our Instant Payments Resource page, complete with a FedNow launch webinar series. For the latest on FedNow, join the Fed’s Town Hall on Aug. 31.