Most developed countries have already implemented instant payments platforms — some as early as 2008. The United States started to catch up with the rest of the world in 2017 with The Clearing House’s real-time payment (RTP) system and with the Federal Reserve’s FedNow Service, launched in July 2023.
The addition of FedNow represents a monumental stride in modernizing the U.S. payments ecosystem. This new, instant payments network enables individuals and businesses to send and receive funds in real-time, 24/7/365, through participating financial institutions (FIs). The future of payments envisions a seamless transfer of funds from the sender’s FI to the recipient’s FI, occurring precisely at the moment the transaction takes place.
As the early days of FedNow unfold, credit unions find themselves at a threshold of change, with the opportunity to reshape their services, elevate the member experience, and secure their footing in the future of payments that is increasingly dictated by the demand for immediacy.
Embracing New Innovations And Expectations
The ability to send and receive funds instantaneously, at any time, represents a significant departure from traditional payment methods like checks and wire transfers. FedNow is a leap forward in terms of speed and convenience, addressing the limitations of the legacy banking system — a system based on a 9-to-5, Monday-through-Friday schedule, with batch and manual processes. The addition of FedNow to The Clearing House’s RTP is making instant payment technologies more ubiquitous — the new standard.
The broader adoption of these technologies, empowered by FedNow, offers accountholders greater flexibility in managing their finances. This highlights the pivotal role of innovation in influencing an individual’s choice of a primary FI. According to a recent PYMNTS and PSCU study, Credit Union Innovation: Staying Ahead Through Payments Innovation, 27% of credit union members would switch or consider switching financial institutions for additional innovation options. This means offering sought-after innovations like faster payments is essential for meeting evolving expectations and sustaining member relationships.
Facilitating Seamless, Faster Experiences
As FedNow accelerates the adoption of new payment technologies, embracing the power of instant payments becomes more than an option; it is now a strategic decision to meet consumer demands and remain competitive. By harnessing FedNow’s capabilities to deliver innovative services to members, credit unions can enhance experiences across an array of practical transaction scenarios. A promising and obvious use case is P2P payments, which stand out due to the high level of pre-existing demand.
PSCU’s most recent Eye on Payments study found 59% of respondents use digital payment methods such as CashApp, Venmo, and Zelle at least periodically. It is clear P2P payment accounts are already commonplace in various scenarios, such as splitting the cost of a group dinner. As the FedNow era dawns, diners might opt to use their FI’s mobile app to reimburse the person who settled the bill, bypassing third-party platforms. These funds will be securely transferred to the recipient’s account before the group even departs the restaurant.
By introducing faster payment solutions that cater to everyday situations like P2P transactions, credit unions can seamlessly deliver convenient experiences that meet and surpass consumer expectations. It is important to think about how payroll, invoice payments, bill payments, and merchant payments also will be transformed by instant payments, not to mention federal and state tax payments, subsidies, and reimbursements now that the U.S. Treasury has also enrolled in FedNow.
Joining The Movement Toward Instant
The power of instant payments is a game-changer for credit unions, and becoming part of the FedNow ecosystem will require a willingness to actively engage and invest in innovative and automated technologies to evolve existing products and services. By leveraging instant payments to respond to consumer demands with innovative real-time payment solutions, credit unions can solidify their position as pivotal players in the financial services industry. The time to embrace the power of instant payments is now, and credit unions have the potential to shape it to their advantage.
Dr. Jorge Jimenez is the president of Juniper Payments, a PSCU company, and Global Fintech Forum LLC, which collaborate on international and instant payments for 3,000 bank customers. He is an expert in payment systems, fintech, and international relations. Dr. Jimenez has worked with governments and central banks in more than 50 countries to implement new payment infrastructures, including the European Central Bank, U.S. Treasury, and Federal Reserve, where he was the product development director for its international ACH solution.
