Decoding the FedNow Service for Community Banks

The FedNow® Service launched in July. However, there are still a lot of misconceptions for those who have not connected to the new rail. The ICBA webinar FedNow in Focus: Maximizing Real-Time Payments for Community Banks, featuring Siobhán O’Malley, National Account Program Manager at Federal Reserve Financial Services, and Mark Majeske, addressed the common questions that community banks have about the FedNow Service. 

Understanding the FedNow Service 

The FedNow service enables financial institutions of every size in every community across the U.S. to provide safe and efficient instant payment services around the clock, every day of the year. It offers immediate settlement and credit push characteristics, immediate availability of funds, and powerful remittance capabilities. The service operates 24/7, 365 days a year, making it the first always-on payment trail offered by the Fed.

The benefits of the FedNow service are significant. It provides financial institutions the opportunity to stay competitive and meet their customers' current and future expectations and demands. Moreover, the service enables a variety of use cases and supports a neutral platform for payments, allowing for choice and flexibility in how institutions connect to it.

The use of the ISO 20022 messaging standard in the service paves the way for nationwide access to instant payments and supports interoperability through routing. Additionally, the service has robust risk mitigation capabilities, including transaction limits, a negative list feature, and reporting requirements for fraud prevention.

FedNow Service Participation and Use Cases  

As the FedNow Service continues to gain traction in the market, community banks must understand the different participation types and high-value use cases available. When considering participation in the FedNow network, financial institutions have the flexibility to choose from various options. They can opt for Receive Only, both Send and Receive, or Send and Receive with Requests for Payment. These options enable financial institutions to tailor their participation based on their specific needs and risk tolerance. 

By selecting the appropriate participation type, financial institutions can unlock a range of high-value use cases within the FedNow network. Instant payments have the potential to address real payment challenges across different sectors. Some notable high-value use cases for FedNow include on-demand payments for businesses, immediate payroll processing for employees, me-to-me or account-to-account transfers, and real estate closings.

During the webinar, a polling question was posed to the audience, seeking insights into their plans for addressing the need for the creation of instant payment use cases. The results revealed that 100% of the respondents indicated a preference for third-party service providers to provide use cases, highlighting the significance of external partnerships in driving the development and implementation of instant payment solutions.

Maximizing ROI with FedNow Real-Time Payments

Real-time payments with FedNow can offer a significant return on investment (ROI) for community banks and other financial institutions. There are several ways to decrease costs with the FedNow Service, such as lower transaction costs and reduced customer service inquiries due to the instant confirmation of transactions. Additionally, the automated end-to-end solution of FedNow allows for the movement of funds and data, which presents opportunities for cost reduction and process efficiencies. Moreover, driving growth with FedNow can be achieved through monetization such as charging a fee for outbound FedNow transactions, offering a premium expedited version of payments while leaving other payment methods, such as ACH, as free options. The rapid movement of funds facilitated by FedNow also allows for improved client experience, instant data and cash flow projections, and enhanced process efficiencies.

Enhancing Client Experience and Real-Time Data Projections

The implementation of FedNow is important for an improved customer experience. With the immediacy of the FedNow Service, customers are provided with immediate confirmation and information regarding their transactions. The ability to project cash flow more accurately and efficiently is a key advantage of instant payments, allowing businesses to better manage their finances. In addition, the transfer of data allows businesses and financial institutions such as community banks to make data-driven decisions and projections in real time. 

Key Preparations for Launching Instant Payments

When launching instant payments, it is crucial to make strategic considerations and align operations with business objectives. The FedNow Explore site provides a wealth of resources to fill knowledge gaps on instant payments. It is important to assess existing customer support capabilities and partner with entities to offer 24/7 support. 

Community banks can consider strategic partnerships that can support their instant payments adoption with solutions such as Orbipay Payments Hub. These partnerships can assist in connecting directly to the FedNow network and enable the bank to leverage a service provider for instant payments.

To learn more about how real-time payments should fit into your community bank’s payment strategy, watch the full webinar FedNow in Focus: Maximizing Real-Time Payments for Community Banks.

Alacriti’s centralized payment platform, Orbipay Payments Hub, provides innovation opportunities and the ability to make smart routing decisions at the financial institution to meet their individual needs. Financial institutions can take full ownership of their payments and control their evolution with ACH, Wire, TCH’s RTP® network, Visa Direct, and the FedNow® Service, all on one cloud-based platform. To speak with an Alacriti payments expert, please contact us at (908) 791-2916 or info@alacriti.com.