The advantages of real-time payments for businesses, customers, and financial institutions are now widely recognized. Yet, when advocating for real-time payments within an organization, critical questions often arise: How can this innovation generate revenue? What benefits extend beyond speed? In an ICBA-hosted panel discussion, Dan Gonzalez of Federal Reserve Financial Services and Mark Majeske of Alacriti tackled these questions, offering insights into the FedNow® Service, the ROI of instant payments, and strategies for community banks to operationalize and monetize this transformative technology.
The Q&A session during this webinar provided an opportunity to address pressing questions from community banks. Majeske and Dan Gonzalez offered in-depth responses to critical topics, including the use of third-party service providers (TPSPs), payment limits, and monetization strategies. Here are the highlights.
Question 1:
If a core provider offers connection to FedNow, what’s the benefit of using a TPSP versus leveraging the core provider?
Mark Majeske explained that while larger banks often connect directly to payment rails due to their resources, smaller to medium-sized institutions can benefit significantly from using a TPSP. “In the TPSP model, there are a lot of things that have to happen… Smaller banks often find it easier to use a TPSP, one that has onboarded a number of banks and is familiar with the process. We’re able to partner with you and make the process a lot easier and give you some suggestions on operational improvements.”
For institutions with ample staff, direct integration may be a feasible option, but a TPSP offers streamlined processes and expertise.
Question 2:
Is the bank able to set limits on when outbound items are sent, or do we have to allow customers to send 24/7?
Gonzalez clarified that banks retain full control over payment timing and limits. “The network itself is always active… but ultimately some of those controls are dictated by the bank themselves and their connectivity.” Banks can set customer-specific limits based on criteria such as creditworthiness or customer type, similar to controls for debit card usage.
Majeske added that restrictions can also be implemented based on timing: “Banks can create scenarios in their UI to restrict maximum limits on weekends or other specific times, providing an added layer of comfort while maintaining network compliance.”
Question 3:
Do you see banks charging fees on both the sending and receiving side?
Majeske observed that most banks charge fees for sending payments but not for receiving them. “On the consumer side, I probably wouldn’t charge someone to receive funds because it could be my payroll… But outbound is a totally different story. There’s enough value built into something like FedNow where it’s worth paying for.”
For treasury customers, the approach may differ, but Majeske encouraged banks to evaluate the value-added nature of expedited payments when determining fees.
Question 4:
Can you give an example of a funding agent and when/why you might decide to use one?
Gonzalez explained that funding agents provide settlement support for community banks that may not wish to manage this internally. “You can connect the FedNow service to the funding agent of your choice. They can either use your Fed Master Account or your banker’s bank for settlement activities.” This flexibility allows smaller institutions to select a setup that best aligns best with their resources and operational needs.
Watch the full webinar, Why Community Bank Execs Can’t Afford to Wait for Instant Payments.
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.