Independent Banker - January 2024 - 50

PAYMENT RAILS VS. OVERLAY
SERVICES
Let's start by defining and differentiating
between payment rails and overlay services.
* PAYMENT RAILS serve as the
infrastructure that enables the
movement of money from one
financial institution to another, like
how a train transports passengers
from one location to another.
* OVERLAY PAYMENT services build on
an existing infrastructure to deliver
enhanced value to customers. Think
of overlay services as the apps on an
iPhone where the phone is the rail,
and the number of apps is infinite.
" The universal connector
is like a train station.
Like a train station,
CHUCK connects different
rails and payment overlay
services. That could be
PayPal, Venmo, Cash App,
Zelle or others. "
-JOHN SCHULTE, MERCANTILE BANK
" Payments are changing. They're
becoming faster and more digital, "
Denning says. " We are entering
a time when the first fully digital
generation of customers is becoming
a greater proportion of the buying
public. To earn
them as customers,
community banks
must play in both
spaces to remain
competitive
over time. "
Now, let's dive
deeper into each
of these payments
service offerings.
PAYMENT RAILS
FEDNOW
WHAT IS IT? The
FedNow Service is
an instant payments
infrastructure
that was launched
by the Federal Reserve in July
2023. Through FedNow, financial
institutions can enable customers to
send and receive money instantly,
giving them immediate access to
funds. Funds sent via FedNow settle
between participating financial
institutions instantly.
" Many of the faster and mobile
50 // ICBA Independent Banker // January 2024
payment services in the market today
are consumer-facing products used
to send and receive payments, " says
Nick Stanescu, executive senior vice
president at the Federal Reserve Bank
of Boston and chief FedNow executive
of the FedNow Service. " While
funds sometimes clear immediately,
the timing of interbank settlement
between the financial institutions
involved depends on the underlying
rail used. "
USE CASES: FedNow supports
countless use cases depending on the
specific needs of financial institutions
and their customers. The Fed sees
use cases whenever the instantaneous
transaction of money can simplify
pain points associated with waiting
for funds to settle. This ranges from
individuals sending money to children
in college to facilitating real estate
closings and auto purchases.
THE FUTURE: In the coming months,
updates to FedNow will focus on
additional fraud prevention tools
and easier user access to important
account and transaction information.
According to Stanescu, the Fed
also plans to introduce tech-centric
developer resources to allow financial
institution participants to access
documentation, such as technical
specifications and code, to support
their service implementation. In
the long term, the Fed will continue
to work to position the FedNow
Service for widespread adoption and,
ultimately, nationwide reach.
RTP
WHAT IS IT? The RTP network, the
real-time payments system from The
Clearing House (TCH), was launched
in November 2017. Available to
all insured financial institutions in
the U.S., the RTP network hit the
1 million daily payment milestone in
September 2023.
What distinguishes the RTP
network and FedNow from other
payment rails and overlay services
Independent Banker - January 2024

Table of Contents for the Digital Edition of Independent Banker - January 2024
