Independent Banker - December 2023 - FIS2

the
Opportunities are
for the taking as
the Federal Reserve
launches its fast
new payments rail
We're living in transformative times for
payments. After more than five years of
providing real-time money transfers across
the U.S., The Clearing House's Real Time
Payments®
billion payments this July.1
(RTP) network surpassed half a
And in the same
month, the Federal Reserve opened its own
instant payments rail, the FedNow®
Service.
Like RTP, the FedNow Service aims to make
everyday payments
fast and convenient
for American households and businesses.
But what does this second mechanism
for instant payments add for community
banks and their customers-and how can
fintech providers help them maximize the
opportunities?
Accelerating transformation
In the digital age, the FedNow Service
represents another step forward for the
transformation of payments and a further
move away from slow, manual and
increasingly insecure and fraud-prone
payment methods like checks.
As well as facilitating 24x7x365 instant
payments for their customers, FedNow
Service participants can fund their Federal
Reserve master
account with instant
transfers. So, signing up to the service will
also help banks better manage their liquidity
and respond more quickly to any shortfalls.
Technicalities aside, though, the FedNow
Service is important because, as a
complementary alternative to RTP, it gives
community banks new flexibility and yet more
chances to increase their competitive edge.
With payments changing faster than ever,
it's time to explore the possibilities.
Breaking into untapped markets
Already, the ability to support instant
person-to-person (P2P) payments is almost
table stakes for many banks. Increasingly,
consumers expect real-time transfers of
funds, as opposed to Automated Clearing
House (ACH) or wire payments that typically
take days to process.
But what about business-to-business (B2B)
payments? As money movement shifts up
a gear,
large corporations have also been
rethinking the way they transfer funds to
settle their accounts payable. By providing
a secure instant payments rail, their typically
large banking partners allow them to hold
onto their cash for longer-and stay on top
of fraud -but still pay their bills on time.
Now, increasingly, the small business space
wants a piece of the real-time action. Cash
is king for smaller firms and security is a
priority, too. So, for community banks,
connecting to the FedNow Service could
open the door to a whole new market for
safer, faster B2B payments.
Getting banks up to speed
In short, there are clear commercial benefits
to taking part in the FedNow Service. But
for the Federal Reserve and fintech partners
like FIS, the challenge remains to spread
the word and educate both banks and their
customers on why they should make the
leap to instant payments.
One big cause for hesitation is a concern
about the risks. With many U.S. consumers
and
businesses
1The Clearing House, RTP® Network Surpasses Half a Billion Instant Payments, July 24, 2023
still
more
comfortable

Independent Banker - December 2023

Table of Contents for the Digital Edition of Independent Banker - December 2023