It’s easy to generate buzz — harder to generate results.
As PYMNTS continues to interview key executives about the first year of the FedNow® Service, it’s apparent that the Federal Reserve’s instant payments network has done both, and its customers are grateful.
Eric Foust, vice president of banking partnerships for North America at open banking and pay-by-bank provider Trustly, told PYMNTS that one year into its lifecycle, FedNow has garnered a lot of attention, but the follow-through and embrace of instant payments will require significant education, especially for consumers.
“At its core,” he told PYMNTS, “the value proposition for a real-time payments network is the movement of money 24/7/365.”
The Clearing House’s RTP® Network launched in 2017, and banks invested in their efforts to connect to the rails, with a handful of larger banks actually operating as owner banks of the RTP network. Now comes the FedNow platform, with around 700 banks having connected to that new infrastructure.
In the year since its introduction on July 20, 2023, said Foust, “the chatter that they created … and the transparency that they’ve had over the last year is something that [the central bank] has done extremely well.”
Joint efforts between financial institutions and providers such as Trustly, said Foust, are critical components of bringing faster payments more fully to the forefront of financial services. As evidenced by partnerships like the one struck with Cross River Bank, which supports instant payments and the FedNow Service, Trustly has been leveraging open banking for payments and data. For instant payments, Foust said, Trustly facilitates money movement from merchants’ accounts to consumers in various payout scenarios.
“If you’re taking money out of a wallet in a transaction,” he said, “we’re investigating whether or not the recipient’s account is on FedNow’s rail — or with The Clearing House’s payment rail.”
There are not many significant differences between the use cases of the RTP and FedNow platforms. Foust noted that FedNow could differentiate itself from TCH’s offering through the use of bill pay, as consumer-to-business payments gain traction on the new payment rails.
But getting toward ubiquity is a bit of a chicken-and-egg problem. The topic of consumer protection will always come up, Foust said. As seen with Zelle, scammers are going to utilize the speed of faster payments against their victims. We’re likely to see more regulation here, as the Consumer Financial Protection Bureau examines consumer protection and scams more closely.
Part of the defenses against fraud and the tailwind for widespread adoption, Foust said, come through education of commercial clients and consumers.
“There has been a heck of a lot of education that has taken place over the last 12 months about ‘what does an instant payment mean for a business?’” he said.
The consumers who have been receiving real-time payments may have encountered the ease and streamlined impact of instant disbursements, he said. But they have little or no experience (yet) with pushing funds to recipients.
“There is still a lot the industry can do to help educate the consumers,” he said, adding: “There’s going to be a maturation process where the knowledge that’s obtained on the business side, so individuals who are dealing with these payments on a day-to-day basis” impart their knowledge “to individuals who are way outside of the payment world and don’t touch the payments on a day-to-day basis.”
Looking ahead, the FedNow Service is focused on delivering what Foust said is its state-of-the-art money movement capabilities to banks and credit unions of all sizes.
The value proposition is already apparent to larger banks, “and I think it’s just a matter of time before those larger banks eventually free up resources as they see the value of the funding mechanism for FedNow and come on board with the other 700 banks that are currently connected,” Foust said.
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