To say that we expect a spike in the adoption of real-time payments in the future, is a gross understatement. Latest studies show that the U.S. real-time payments market is expected to grow at a staggering 30.4% compound annual growth rate (CAGR) between 2022 and 2030. The increased use of mobile payments, innovative solutions based on Artificial Intelligence (AI) and Internet of Things (IoT), and online payments will bring unprecedented efficiency to the digital banking world. These solutions will reduce processing costs and turnaround times for most financial processes without compromising security.
In the U.S., the Federal Reserve Bank is actively working on instant payment technologies to increase the efficiency of these systems even further. This blog will discuss these payment technologies, popularly known as FedNow.
What is FedNow?
FedNow is the next-generation payment technology developed by the Federal Reserve to help financial institutions in the U.S. offer safe and efficient instant payment services 24×7, 365 days a year. FedNow is currently in a trial phase for the community banks to start adoption planning. According to the Fed, its target release date is set for July 2023.
Top Features of FedNow Services
Real-time Payments: The real-time payments (RTP) network based on the FedNow service is robust enough to have near-perfect 24x7x365 uptime. So, users can transfer funds whenever they need to (even on public and bank holidays). Such real-time transfers help the payee access and use funds immediately.
Instant Reporting: Like other faster payment systems, FedNow will also facilitate instant reporting both on the payee and payer fronts. Such instant confirmation of payment increases the trust amongst business partners.
Universal access: FedNow will be accessible to all local and community banks, making RTP more accessible to all consumers and businesses.
Extensive Use Case: FedNow also supports a variety of different use cases. Learn more about the core FedNow use cases.
Excellent Security: The FedNow service supports fraud mitigation. Moreover, it offers reduced operational risk with liquidity management, intraday credit, optional receive-only participation, and broadcast status messages. Learn how financial institutions detect and prevent fraud while adopting faster payment systems.
How Does FedNow Help You?
One of the key differentiating factors of the FedNow instant payment service is its benefits to all users. Service providers, business owners, individuals, and financial institutions can leverage the FedNow payment system for the following benefits:
- Service Providers: Service providers can get unparalleled payment network access and APIs to develop helpful payment technologies for their customers.
- Businesses: Businesses can use FedNow for bill payment, payroll processing, and other internal funds transfer processes. Instant payments will help business owners avoid complicated cash-flow management and costly short-term loans. They will also reduce manual and time-consuming payment processes.
- Individuals: Individuals can leverage FedNow for bill payment/presentment and mobile/online banking applications. The real-time payment solution will help gig economy workers get paid quickly. Individuals with an account in any bank will have access to FedNow due to its extensive adoption across financial institutions. This technology will also reduce risks associated with account overdrafts, late fees, and damaged credit scores.
- Financial Institutions: FedNow will work directly with the core banking systems of financial institutions to offer a flexible and neutral platform to all kinds of commercial and individual consumers.
Room for Future Developments
The Federal Reserve has designed FedNow to scale and improve efficiency over time. It has created room for additional features that make FedNow the preferred choice for real-time funds transfer. Some of the other developments that will enhance the user experience in the following years include:
- Enhanced Information: Real-time remittance for B2B payments made via merchant accounts and point-of-sale (POS) terminals
- Improved Reporting: Active real-time reporting for businesses, financial institutions, and consumers
- Easier Transfer Process: Alias-based directory support for a faster transfer process
- API Developments: Open API interface for the development of complementary third-party reporting services
- Fraud Mitigation Tools: To further secure the network and prevent fraud
The FedNow service shows immense promise even though it is still in a nascent stage. Backed by the Fed directly, it will become one of the most reliable payment processing technologies in the future. Financial institutions that want to leverage FedNow should partner with payment gateways that can help them with the adoption process. If you are a financial institution that helps consumers accept payments via credit and debit card payments, you should consider adopting ACH too. Download our catalog to learn more about the latest payment methods that help you save costs and offer better customer service.